Singapore-based Luna Foundation Guard (LFG) said on Monday it spent billions of dollars' worth of Bitcoin and other cryptocurrencies last week in its unsuccessful attempt to uphold the peg of collapsed stablecoin TerraUSD (UST).
LFG, the association formed to defend and support the decentralised token and Terra blockchain, said its Bitcoin reserves dropped from more than 80,390 to only 313 in less than 10 days.
LFG, which was set up by Terra creator Do Kwon, had collected more than 80,000 Bitcoins that were worth over $3 billion last week.
“Consistent with its non-profit mission and focus on the health of the Terra ecosystem, beginning on May 8, when the price of $UST began to drop substantially below one dollar, the foundation began converting this reserve to $UST,” LFG said in a statement on Twitter.
“The foundation did so by directly executing on-chain swaps and transferring $BTC [Bitcoin] to a counterparty to enable them to enter trades with the foundation in large size & on short notice.”
The last week’s collapse of the UST stablecoin sparked a panic in the crypto market.
The UST stablecoin — which is usually expected to be worth $1 — dropped below $0.20. Meanwhile, the Luna token that is intended to serve as a shock absorber for UST’s algorithmic dollar-pegging mechanism, plummeted to $0.002 from $80.
Terraform Labs — the company behind blockchain technology that runs the UST and Luna coins — twice stopped processing new transactions to calm the market fluctuations. Both the UST and the associated Luna tokens were trading near zero at the time of the second halt.
Stablecoins, which are pegged to the value of traditional assets such as the US dollar, are usually popular in times of turmoil. They are key elements of the cryptocurrency market and traders park funds in these assets as they move in and out of other digital tokens.
LFG said it would disburse its remaining assets to compensate users of the stablecoin, starting with the smallest holders. However, it did not disclose the future plans.
“We are still debating through various distribution methods, updates to follow soon,” LFG said.
The world's biggest stablecoin, Tether, also briefly lost its 1:1 peg on Thursday but recovered shortly. On the same day, Bitcoin — the world’s largest cryptocurrency — dropped to $25,400, its lowest level since December 2020.
Bitcoin was trading 5.3 per cent down on Monday at $29,630.6 a coin on Monday. Ether, the second-biggest crypto, was almost 6 per cent down at $2,016.2 a coin.