LFG Reserves Dwindle to Just 313 Bitcoins From 80K After UST Crash

The announcement comes after criticism of the Luna Foundation Guard's "lack of transparency."

AccessTimeIconMay 16, 2022 at 9:59 a.m. UTC
Updated May 11, 2023 at 4:24 p.m. UTC

The Luna Foundation Guard (LFG), official stewards of Terra’s bitcoin (BTC) reserves, released a statement on Monday documenting how it disbursed millions of dollars' worth of crypto in its failed attempt to maintain the peg of stablecoin terraUSD (UST).

In the statement, LFG notes that it has almost entirely depleted its BTC reserves from around 80,000 bitcoins to 313. The remaining assets, which mostly comprise the crashed UST and LUNA tokens, will apparently be used to compensate investors.

In a subsequent tweet, LFG denied accusations that it bailed out whales with the bitcoin trove: “there was never any deal for ‘insiders’ to exit. LFG funds were merely used squarely within its mandate to help protect UST peg.”

In one of the most calamitous events in crypto memory, the $40 billion Terra ecosystem collapsed last week when the UST stablecoin, which is supposed to be worth $1, dropped to below 20 cents. The LUNA token, which is designed to serve as a sort of shock absorber for UST’s “algorithmic” dollar-pegging mechanism, crashed from $80 to below 2 cents.

In a tweet on Monday, LFG said it sold off most of the BTC in its reserves for UST as Terra’s ecosystem was beginning to collapse early last week.

LFG said it transferred more than 50,000 bitcoins “to trade with a counterparty” on May 8, as the UST price was originally starting to slump.

It said the funds were used for “directly executing on-chain swaps and transferring $BTC to a counterparty to enable them to enter trades with the Foundation in large size and on short notice.”

On May 12, LFG said another 30,000 BTC from its reserves were sold off by Terraform Labs, the original company behind Terra, “in a last ditch effort to defend the peg.”

That, however, failed to restore UST’s peg to the U.S. dollar as traders continued to sell the token for other stablecoins, leading to an exodus of capital away from UST and thus lower prices.

LFG confirmed the remainder of its reserves, which once totaled over $3 billion, have sunk almost completely as a result of the unsuccessful effort to defend UST.

LFG says these funds will be used “to compensate remaining users of UST, smallest holders first.”

Monday’s statement from LFG comes amid criticism that Terra’s reserve funds, which were supposed to belong to the “decentralized” Terra community, were handled with a lack of transparency by Terra’s centralized leaders and investors.

It also comes after leading figures in the blockchain sector, including Ethereum co-founder Vitalik Buterin, have called for Terra to compensate smaller holders of UST and LUNA before its largest investors.

UST’s price plummeted further in response to Monday’s announcement – from 15 cents to 7 cents.

Meanwhile, only about $80 million worth of other cryptocurrencies – apart from UST and LUNA – remain in LFG’s reserves at current prices, a tiny figure compared with its $10 billion target reserve at the start of this month.

UPDATE (May 16, 13:29 UTC): Updates headline, adds additional details in eight and 14th paragraph.

UPDATE (May 16, 15:10 UTC): Adds third paragraph regarding insider allegations.


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