Luna Foundation Guard, an organization of the Terra ecosystem (LUNA), this Monday (9) emptied its Bitcoin (BTC) wallet dedicated to providing resources to guarantee the backing of the TerraUSD (UST) stablecoin.
By looking at the trail of bitcoin on the blockchain, it is possible to see that it has been spread to several different wallets, but there is still no confirmation of the final destination of these coins.
On Twitter, users speculate that a portion of this money was sent to the OKX exchange, signaling a possible liquidation of the bitcoin reserve in the market.
“It looks like they split the funds, with 12.5k BTC and 30k BTC going their separate ways. Supposedly, a parcel was sent to OKX as well,” wrote the user @DaxxTrader sharing the flow of the cryptocurrencies tracked on the breadcrumbs platform.
Furthermore, the profile that monitors the bitcoin blockchain, Mempool Whaleswarned this afternoon that an unknown wallet had deposited 37,180 BTC on the Gemini exchange.
At the same time the Luna Foundation’s bitcoin wallet was emptied, around 3:30 p.m., the cryptocurrency’s price went into freefall until it hit $30,556, according to CoinMarketCap.
At the time of writing, bitcoin continues to trade at around $30,780, which represents an 11.2% drop in the last 24 hours.
UST may be behind BTC crash
By all indications, the Luna Foundation team is taking drastic measures to try and save their stablecoin UST from total collapse. On Monday afternoon (9), the price of the stablecoin paired with the dollar – and which, therefore, should always be US$ 1 – hit US$ 0.95, according to CoinMarketCap.
On some exchanges, such as Binance, the UST was even traded for $0.92 with the pair in USDT.
One hypothesis gaining traction in the community is that the Luna Foundation is using its bitcoin reserve to buy UST and try to bring the price of the stablecoin back to one US dollar.
When the Luna Foundation’s BTC wallet was emptied, Do Kwon, founder and CEO of Terraform Labs, simply wrote on Twitter that he was “Deploying more capital”.
The fall of the UST
This Monday (9), the Luna Foundation Guard voted to lend $1.5 billion in cryptocurrencies to maintain the stability of the UST.
The organization’s committee voted to borrow $750 million in bitcoin from its reserves and $750 million in UST to keep the asset backed at $1.
The organization made the loan to an unidentified “professional market maker”, second From Kwon.
The loan was made on account of UST’s loss of collateral in the US dollar amid extreme volatility in the crypto markets.
On Saturday (7), the stablecoin dropped to around $0.985, before dropping back to $0.99. Once again on Monday (9), the currency was once again hit by extreme fluctuations, falling to $0.92 on some exchanges.
THE borrowed capital by the currency team would be used to buy UST if the asset continues to fall below its backing and sell UST (and buy BTC) if the asset becomes greater than or equal to its backing.
How UST works
Unlike more traditional stablecoins like USDT from Tether or USDC from Circle, UST is decentralized and algorithmic.
It is decentralized because the token is not held by a centralized entity or backed by centralized assets (whether these are cash, bonds, stocks or others).
Instead, UST maintains its stability through an issue and burn mechanism using the LUNA ecosystem’s staking and governance token.
This mechanism allows people to redeem 1 UST (no matter what its price) for $1 in LUNA. Every time this conversion is done, the UST in question is destroyed (or, in crypto terms, “burned”) and removed from circulation.
Whenever 1 UST is not equivalent to US$1, arbitrators can quickly convert UST for US$1 into LUNA, selling the LUNA and generating a small profit.
However, this mechanism came under threat as users began selling UST in bulk in exchange for other stablecoins on the decentralized exchange (DEX) Curve Finance as well as Binance.