Luna Foundation Guard (LFG), a Singapore-based non-profit organization that supports the Terra blockchain ecosystem, is looking to raise more than $1 billion in support of the algorithmic stablecoin UST after it lost parity with the US dollar, according to three sources familiar with the situation.
Algorithmic stablecoins like UST are supposed to remain pegged to the price of the base fiat currency like the dollar. But UST fell to $0.61 on Monday amid a broad sell-off in the crypto markets, before recovering to $0.91 at the time of writing.
The group is now looking to raise fresh capital from some of the industry’s largest investment firms and market makers, according to the sources. The deal, which is currently being negotiated, offers investors the opportunity to purchase LUNA tokens at a 50% discount, although those tokens will be subject to a two-year maturity schedule.
LFG did not respond to The Block’s request for comment.
The funding effort, which could help the project defend the peg of underground tanks to the dollar going forward, is the latest attempt by LFG to instill a new degree of confidence in the marketplace. On Monday, LFG announced that have lent $1.5 billion worth of bitcoin and UST to third-party trading companies. LFG originally sought to buy up to $10 billion in bitcoin to support the stablecoin peg.
Ground treasuries are trying to maintain parity with the dollar through their relationship with the LUNA token. The combustion mechanism and the ability to sell a LUNA $1 for 1 floor tank were designed to keep it in check.
However, critics say the success of this operation depends on the strength of LUNA’s price and on the main DeFi platform, Anchor, which continues to produce returns of up to 20% to stimulate liquidity.
Anchor has seen its total deposits drop sharply from a peak of $14 billion to less than $10 billion.
Arbitrageurs aim to intervene during these moments of price imbalance, converting $100 in Terra’s original LUNA token into $100 floor treasuries and bringing the price discrepancy between the two.
But over the past two days, large volumes of withdrawals from terrestrial reservoirs via decentralized financing protocols have put enormous pressure on the system.
LFG supports both land tanks and the wider Terra ecosystem. Non-Profit Organizations Board of Directors Including Terraform Labs co-founder Do Kwon, Terraform Labs head of research, Nicholas Platias, and Jump Crypto president Kanav Kariya, among others.
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