Key facts:
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The price of the UST stablecoin has been below $1 for several hours.
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Minutes ago, Do Kwon reported that they “deployed more capital.”
Fundación Luna, an entity that brings together developers of the Terra network, has lent just over 20 thousand bitcoins (BTC) and 750 million US terra (UST) to private companies. The objective of the move that took place hours ago is to try to maintain parity with the dollar of that last cryptocurrency, which, at the time of this publication, is at USD 0.94
As CriptoNoticias has detailed, Fundación Luna maintains reserves for more than 80 thousand BTC. Although UST is an algorithmic stablecoin not collateralized by any other coinBTCs serve “to provide an additional layer of support that guarantees” the price of the stablecoin.”
On this occasion, BTC and UST were placed in the hands of professional market makers. As explained by Do Kwon, CEO of Terra, the goal is to buy more UST if its price is less than USD 1; and buy BTC if the price of UST is equal to or greater than one dollar. This strengthens liquidity around the UST parity.
“As the markets recover, we plan to redeem the loan into BTC, increasing the size of our total reserves,” added the South Korean businessman leading the project.
The measurement was taken by vote of the Council of the Luna Foundation and, up to the time of publication of this article, it has not given satisfactory results because UST fails to regain parity with the US currencyas seen in the following graph:
Minutes before this post, Do Kwon wrote on his Twitter account, “Deploying more capital”. It is possible that you have made a new move to try to intervene in the movement of the market.
Failure in the algorithmic mechanism of UST
The movement of the Luna Foundation to try to save UST is a sign that the algorithmic mechanisms that maintain the parity of the stablecoins with the US dollar are not working properly.
«From algorithmic to ‘council’ [manejada por un Consejo] managing reserves in other assets, non-stop”, wrote the Argentine bitcoiner, Franco Amati, on his Twitter account.
Anyway, to the Luna Foundation (and also to any individual who might take advantage of it) this is a possibility to earn money. As detailed in this medium, through seigniorage it is possible earn income every time UST loses its peg to the dollareither by excess or by deficiency. Of course, this will only happen if UST recovers its price later.
