TerraUSD broke its peg as LFG committed $1.5 billion to defend it

TerraUSD broke materially below its intended one-dollar price on May 9, 2022, while the Luna Foundation Guard announced that its council had authorized a two-sided, $1.5 billion market operation intended to defend the algorithmic stablecoin.

The foundation said it would lend $750 million worth of bitcoin to over-the-counter trading firms to protect the UST peg and lend 750 million UST to accumulate bitcoin as market conditions normalized. Traders were expected to operate on both sides of the market, allowing the reserve pool to support UST during the imbalance and rebuild its bitcoin position if stability returned.

That announcement was a plan and an attribution from LFG, not proof that every authorized asset had already been traded or that the peg would hold. The identity of the market makers, loan terms, execution venues and transaction-level results were not disclosed in the announcement.

The market record showed a failed peg

CoinMarketCap’s historical snapshot for May 9 listed UST at $0.7934, down 20.37% over its trailing 24-hour measurement. The same snapshot placed UST’s circulating supply at approximately 18.61 billion tokens and its displayed market capitalization at approximately $14.76 billion.

Those figures describe CoinMarketCap’s aggregated snapshot for the dated observation. They are not an official closing auction, a guaranteed executable price or a complete record of intraday highs and lows across every exchange. Crypto trading continued around the clock, and UST prices varied between centralized and decentralized venues.

The stress extended to Terra’s floating-price LUNA token, which supported UST’s mint-and-burn stabilization mechanism. CoinMarketCap’s May 9 snapshot listed LUNA at $32.00, down 50.06% over 24 hours, with a displayed market capitalization of approximately $11.04 billion. Bitcoin was listed at $30,296.95, down 11.05% over the same trailing window, showing that Terra’s crisis unfolded during a broader digital-asset selloff rather than in an otherwise stable market.

Why the reserve intervention mattered

UST was designed so that one token could be exchanged through Terra’s protocol for one dollar’s worth of LUNA. When UST traded below one dollar, arbitrageurs theoretically could buy discounted UST, redeem it for LUNA and reduce UST supply. That design depended on functioning markets and sufficient demand for newly created LUNA.

The bitcoin reserve was intended to add an external source of market liquidity when the native mechanism came under pressure. May 9 therefore became a direct test of whether a large crypto-denominated reserve, deployed through professional traders rather than an automatic on-chain redemption facility, could arrest a run on a major algorithmic stablecoin.

Contemporaneous reporting also identified an important limitation: UST holders could not directly redeem their tokens for LFG’s bitcoin. The announced support depended on intermediaries executing trades and on those trades restoring confidence. A transfer out of an identified reserve wallet could demonstrate movement of bitcoin, but without exchange records it could not establish the final sale price, purchaser or amount of UST acquired.

What was knowable on May 9

By the end of the dated market snapshot, the intervention had not produced durable one-dollar parity. It was reasonable on May 9 to conclude that Terra’s stabilization system faced an exceptional liquidity and confidence test. It was not yet possible to establish the eventual fate of the network, the final losses, the complete use of reserves or any later legal conclusions.

Later context, clearly separated

A forensic report commissioned by Terraform Labs and published in November 2022 later concluded that LFG and counterparties used approximately 80,000 bitcoin, alongside USDT and USDC, to purchase UST during the broader defense period. The report relied partly on private exchange records and expressly stated that it was not an AICPA attest engagement. It helps clarify later accounting but does not change the narrower record available on May 9, 2022.