The Luna Foundation Guard (LFG) had purchased around $3.5 billion worth of Bitcoin in order to bolster Terra Luna’s algorithmic stablecoin reserves prior to its collapse.
Luna Foundation Guard (LFG), the organization responsible for the defunct Terra ecosystem, spent $2.8 billion in cryptocurrency in May trying to protect the peg of algorithmic stablecoin TerraUSD (UST) according to a third-party audit by JS Held, a Jericho, New York-based consultancy company.
Additionally, the audit indicates that Terraform Labs (TFL), the company behind the Terra blockchain, spent $613 million attempting to uphold the peg. The value of another asset, typically fiat currencies, is replicated by a stablecoin, which is an asset with this architecture. UST was an algorithmic stablecoin that relied on market forces to keep its peg.
The $60 billion ecosystem was decimated as a result of the failure of LFG and TFL’s efforts, and UST’s value decreased to zero. Numerous lenders, brokers, and exchanges filed for bankruptcy due to their exposure to the ecosystem after the collapse, which caused widespread contagion throughout the cryptocurrency industry.
Do Kwon, the creator of Terraform Labs, dismissed comparisons to the bankruptcy of the FTX exchange, which recently filed for bankruptcy when the company encountered liquidity problems after leveraging users’ funds to trade the market.
“While there have been multiple recent failures in crypto, it is important to distinguish between Terra’s case, where a transparent, open-source decentralized stablecoin failed to maintain peg parity and its creators spent proprietary capital to try to defend it, and failure of centralized custodial platforms where its operators misused other people’s money (customer funds) for financial gain,” said Do Kwon, Terraform Labs founder.
Market chaos resulted from Terra’s demise as well as those of its subsidiaries, USTC and LUNC. The FTX empire also collapsed, adding to the ongoing market turmoil.