LFG Unpacks Bitcoin Activity During LUNA, UST Collapse

The Luna Foundation Guard (LFG), the non-profit organization overseeing the Terra ecosystem, said that its Bitcoin reserves dropped by more than 80,000 BTC over the last week.

Per LFG’s Twitter thread Monday, as of May 7, it held 80,394 BTC (more than $3 billion at that time) in its reserves and a selection of other cryptocurrencies, including BNB, USDT, USDC, AVAX, UST, and LUNA.

However, as of today, the organization’s remaining reserves include a mere 313 BTC or approximately $9.2 million at current prices, the organization said.

The wipe-out of more than 80,000 BTC follows the dramatic collapse of Terra’s UST algorithmic stablecoin and the network’s native token LUNA last week. UST, supposed to be pegged 1:1 to the U.S. dollar, went into a freefall to sink below $0.15, while LUNA crashed from about $80 to $0.0002, according to CoinMarketCap.

Since January, LFG has been accumulating its crypto reserves for a de-pegging scenario, with the funds ready to be deployed if UST slips below its $1 peg.

When the value of the UST stablecoin fell below its peg on May 9, the LFG said it would use as much as $1.5 billion in crypto, including $750 million in Bitcoin, to purchase UST and defend the stablecoin’s peg. This money was reportedly sent to an address owned by a “professional market maker” who would deploy funds on behalf of LFG.

What Happened to Terra’s Bitcoin Reserve as UST and LUNA Crashed

Last weekend, as Terra’s UST stablecoin showed the first warning signs of instability, slipping from its dollar peg to $0.985, Luna Foundation Guard (LFG), the nonprofit responsible for overseeing the health of Terra’s ecosystem, voted to deploy $1.5 billion in Bitcoin and UST from reserves to repeg UST to the U.S. dollar. The move was the execution of a code-red strategy LFG had been planning for months: Since January, LFG had stockpiled over $3.5 billion in reserves of Bitcoin, Avalanche, LUNA...

This was later confirmed by blockchain forensic firm Elliptic, which also said that on the same day, a further $930 million worth of Bitcoin was sent from multiple LFG-associated wallets to the market maker’s address.

This total of 52,189 Bitcoin, worth over $1.6 billion, was then moved to a single account at crypto exchange Gemini.

LFG confirmed the transaction today, saying that it transferred the 52,189 BTC in question “to trade with a counterparty… for an aggregate 1,515,689,462 UST.”

The organization further stated that on May 10, when UST's price had fallen below $0.07—in a last-ditch effort to defend the peg—Terraform Labs (TFL), the company developing the Terra blockchain, sold 33,206 BTC for an aggregate of 1,164,018,521 UST.

Despite all the emergency measures, UST’s collapse couldn’t be prevented, with today’s LFG statements sinking the price of the stablecoin from $0.20 to $0.12 at press time, per CoinMarketCap.

LFG also said that it was “looking to use its remaining assets to compensate remaining users of UST,” with the smallest holders served first.

The exact distribution methods are yet to be decided, though.