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On May 16, the LUNA Foundation Guard published details on the release of all 80,082 Bitcoin reserves in the LFG fund for the purpose of rescuing UST from de-peg. However all failed.
How Luna Foundation Guard Burned $3 Billion Bitcoin in 3 Days
A disastrous week for the crypto market, LUNA bottomed out at 99% in just two days as stablecoin UST lost 85% of its value between May 9 and May 14.
On May 16, the LUNA Foundation Guard (LFG) announced on its Twitter page the sale of a significant amount of Bitcoin (BTC) from its reserves. The platform sold 80,082 Bitcoins to UST between May 8 and 10.
LGF informed on Twitter that:
As of May 7, 2022, the Luna Foundation has the following assets in reserve: 80,394 BTC, 39,914 BNB, 26,281,671 USDT, 23,555,590 USDC, 1,973,554 AVAX, 697,344 UST, and 1,691,261 LUNA.
The institution began the process of transferring this reserve into UST on May 8 after transferring more than 50,000 BTC “to trade with a counterparty,” when the price of UST began to drop.
The funds are used to directly execute on-chain swaps and transfer Bitcoins to a counterparty to enable them to enter trades with LFG at a large scale and in a short time.
Sold 26,281,671 USDT and 23,555,590 USDC for approximately 50,200,071 UST.
Transferred 52,189 BTC to trade with a counterparty, the net amount exceeded the 5,313 BTC they returned, for a total of 1,515,689,462 UST.
May 10, when UST dropped to $0.75. TFL, on behalf of the institution, sold off another 33,206 BTC as a last-ditch attempt to protect the UST peg.
LFG confirmed that from having $3.1 billion in reserves a week ago, now only about $87 million remains. Meaning they spent about $3 billion trying to protect the UST but it still fell apart in the end.
Of the $3 billion expenditure, excluding UST and LUNA, the total remaining amount of LFG is about $268 million.
The fact that LFG did not disclose the identity of the “trading partner” they sent 52,189 BTC caused a lot of controversy. Many arguments suggest that it is possible that BTC is simply draining liquidity for counterparties and not pushing the peg up. This is essentially an internal action for funds invested in LUNA – UST to “escape” from UST back to BTC, but no Bitcoins are sold to save the price for UST.
An influential figure in the industry criticized LFG on Twitter:
I want to know who this partner is.
If LFG trades its BTC for UST from them, it is possible that BTC is merely draining the counterparty liquidity and not pushing the peg up.
Ideally, the LFG would trade BTC for USDT/USDC and the market bought UST with those.
The current total supply of UST is 11.28 billion. Each UST will receive a value of $0.0077, about 11 times less than the 0.084 price at which the stablecoin is currently trading on the market.
LFG’s BTC sell-off is very reprehensible because the Luna Foundation Guard once said that the mission of the reserve fund is to give investors more options to convert UST to other currencies like BTC in the case of UST de-peg. , instead of just changing to LUNA causes the price of both to go down.
The best solution for LFG is to reduce the supply of UST in the market to help the stablecoin get back to the $1 mark through Bitcoin holdings as it is the largest asset in the fund.
Retail users get priority refund
LFG’s latest statement says it will use the remaining assets to reimburse its other UST users, starting with the one with the lowest amount. The founder of Ethereum, Vitalik Buterin, also supported this move by the LFG.
This statement comes in the context of Terra’s reserve fund (decentralized community) being strongly criticized by the community for its lack of transparency in handling by leaders and investors. concentrate.
LFG’s actions affected Binance, the leading cryptocurrency exchange, which received 15,000,000 LUNA as part of the exchange’s initial $3 million investment. However, the CEO of Binance, Changpang Zhao, still asked the LFG to prioritize compensation for retail users before any institutions.
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