The Luna Foundation Guard (LFG), steward of Terra's UST stablecoin, is looking to raise more than $1 billion, according to a new report from The Block.
LFG will use the money to restore UST's dollar peg. On Monday, the algorithmic stablecoin fell as low as 60 cents amid the general turmoil in the crypto market. On Tuesday, it remained in the 90-cent range.
Jump, Celsius, Jane Street and (perhaps) Alameda are reportedly in talks over a deal that would allow them to acquire LUNA, UST's sister token, at a 50% discount. The tokens would be subject to a one-year lock-up period and paid out monthly in the second year, according to The Block. The companies did not immediately respond to CoinDesk.
LFG did not comment on the funding round when reached by CoinDesk. Early Tuesday, Do Kwon, founder of Terra creator Terraform Labs, tweeted simply, "Close to announcing a recovery plan for $UST. Hang tight."
UST uses blockchain-based coin and burn mechanisms to theoretically keep the price at exactly $1. LUNA is used as a kind of shock absorber for UST volatility by guaranteeing that 1 UST can always be exchanged for $1 in LUNA, which has a variable price.
When UST fell as low as $0.61 on Monday, it sent shockwaves throughout the decentralized financial industry (DeFi) and even triggered comments from U.S. Treasury Secretary Janet Yellen about the risks of crypto stablecoin bank runs.
When UST crashed and LUNA's price fell nearly 50%, LFG deployed over $1.5 billion of its newly formed bitcoin reserves to defend UST's peg.
With the help of professional market makers, the reserves appear to have succeeded in lifting UST's price back up to 0.92 cents by press time. This was a significant increase from Monday's lows, but is not considered a full recovery as UST remains below its dollar peg.