The Luna Foundation Guard (LFG) Council will provide a $1.5 billion loan to OTC traders to peg the TerraUSD (UST) algorithmic stablecoin to the dollar amid market volatility.

1/ In the past few days, market volatility among crypto assets has increased significantly.

The turbulence in the market is also reflected by the uncertain macro conditions of the past week in legacy asset classes.

— LFG | Guardian of the Luna Foundation (@LFG_org) May 9, 2022

“The last few days, the volatility of the cryptocurrency market is significant. Market turmoil is also reflected in the uncertain macroeconomic conditions for legacy asset classes.

Last weekend, the UST briefly lost its peg against the dollar. This happened against the backdrop of the massive outflow of funds from the Anchor protocol.

“UST experienced significant directional flow over the weekend accompanied by volatility in both LUNA and Bitcoin. “Although this move is stabilizing, it is prudent to be prepared for possible future volatility,” LFG said.

To preserve “the stability of the UST and the Terra ecosystem as a whole,” the LFG board decided to provide $750 million in BTC and $750 million in stablecoin loans to OTC firms.

4/ As a result, the LFG Council voted to:

— Lend $750M worth of BTC to OTC trading firms to help protect the UST stabilizer.

— Lend 750 million UST to accumulate BTC as market conditions normalize.

— LFG | Guardian of the Luna Foundation (@LFG_org) May 9, 2022

“Traders will trade capital on both sides of the market, helping to achieve both the first and second objectives, and ultimately maintaining the parity of the LFG (in BTC) reserve pool as market conditions gradually stabilize,” the organization said.

Delphi Ventures partner Jose Maria Macedo stated that LFG’s decision will make UST more reliable, but also more centralized.

Haters will criticize it for centralization and for now they are right. @LFG_Reserve made $UST more robust, but also temporarily more centralized

The fully decentralized reserve mechanism announced by @bounce_ being worked on by @astroport_fi team as we speak https://t.co/0REaVl47Ng

— José Maria Macedo (@ZeMariaMacedo) May 9, 2022

One user stated that it is impossible to talk about decentralization when a small group of people decide to allocate funds in a meaningful way.

“You are right, the market collapsed before the systems were ready. So there has to be an intervention,” said Do Kwon, founder of Terraform Labs.

https://t.co/GSKJYU2ODx

Your right – the market was tanked before the systems were ready, so this would interfere

— Do Kwon (@stablekwon) May 9, 2022

Some felt that the funds allocated were insufficient to stabilize the UST fixed.

Recall that in May LFG purchased another 37,863 BTC for a total of ~$1.5 billion, bringing the balance to 80,394 BTC (~$2.98 billion).

Earlier, Kwon said that a $10 billion bitcoin reserve fund must be raised to sustainably secure the UST.