Terra Blockchain Backers Commit to Loan Bitcoin
Along with his team at the Luna Foundation Guard, Kwon has committed to loan Bitcoin to support TerraUSD. Approximately $10 billion in Bitcoin would be bought as TerraUSD, or UST lost its peg against the dollar over the weekend.
UST has gone below the level of $1 to be traded at 88 cents on Binance. It has caused the backers to lend $1.5 billion in loans denominated in Bitcoin and UST to keep the digital currency alive in the market.
The weekend turned the table with TerraUSD getting depegged against the dollar. A factor that could have triggered the cause is the withdrawal of TerraUSD on Curve Finance and Anchor. According to data made public by Nansen, a blockchain data tracker, more than 121 million TerraUSD tokens were withdrawn over the weekend.
The withdrawal of TerraUSD took down the price of LUNA on the trading board, with the value registering a figure of $58.48. It was down by 11% in the past 24 hours.
Meanwhile, the total deposit of TerraUSD on Anchor fell from $14.1 billion to $11.8 billion. Kwon published a tweet to state that Terraform Labs has initially removed $150 million TerraUSD from Curve and sent back $100 million TerraUSD after the depeg. Kwon added that the team would look to redeem the loan once the market begins to recover from the decline.
Experts are also keeping an eye on TerraUSD. Steven Goulden, a Senior Research Analyst at Cumberland DRW, said that they would be watching the market for the next 24 hours, including the effects that mechanisms have on lowering the stress in such times.
John Kramer, the Director of Trading at GSR, stated that the weekend played out as if it was an attempt to manipulate the value of TerraUSD, with LUNA bearing the brunt of the offensive as participants plan to mint LUNA with their UST.
Stablecoins have been in the market mainly to mitigate the risk of volatility that cryptocurrencies like Bitcoin and Ethereum carry in the digital ecosystem. There are no wild swings in Stablecoins, enabling traders to park their funds and experience them grow safely.
Fiat currencies enter the crypto ecosystem when depositing and withdrawing funds from the exchange platforms. They follow the same know your customer rules just as a bank does, and it goes on to give traders the power to speculate on cryptocurrencies.
While various stablecoins are backed by real-world dollar-denominated reserve assets, UST functions differently by maintaining its peg against LUNA, explaining why the withdrawal and depegging of TerraUSD affected LUNA to such an extent.
Calculations show that for every TerraUSD that is created in the market, nearly $1 LUNA is wiped out of circulation and vice versa.
Terra does have capital control to prevent the withdrawal of TerraUSD from circulation. Ryan Watkins, a Co-Founder of Pangea, echoes the same tone and adds that TerraUSD can be redeemed for LUNA.
As of now, there is a huge trading activity on TerraUSD at Curve, says Michael Egorov. There is little clarity on how LFG plans to utilize $750 million BTC from the reserve, but one thing that is a surety is that LFG is not planning to exit its position in Bitcoin. Kwon tweets that there was a plan in place to redeem the loan as the markets begin to recover.