The Luna Foundation Guard (LFG), the official custodians of Terra's bitcoin (BTC) reserves, issued a statement on Monday detailing how it disbursed millions of dollars in crypto in a failed attempt to keep stablecoin terraUSD pegged (UST).
LFG states in the statement that its BTC reserves have nearly depleted from around 80,000 bitcoins to 313. The remaining assets, which primarily consist of UST and LUNA tokens that have crashed, will reportedly be used to compensate investors.
"There was never any deal for 'insiders' to exit," LFG said in a subsequent tweet, denying accusations that it bailed out whales with the bitcoin trove. " LFG funds were merely used squarely within its mandate to help protect UST peg date."
The $40 billion Terra ecosystem collapsed last week in one of the most disastrous events in crypto history when the UST stablecoin, which was supposed to be worth $1, dropped to under 20 cents. The LUNA token, which was supposed to act as a shock absorber for the UST's "algorithmic" dollar-pegging mechanism, plummeted from $80 to less than 2 cents.
LFG said in a tweet on Monday that as Terra's ecosystem began to collapse early last week, it sold off most of the BTC in its reserves for UST.
On May 8, LFG said it transferred more than 50,000 bitcoins "to trade with a counterparty" as the UST price began to fall.
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," according to the statement.
On May 12, LFG said Terraform Labs, the original company behind Terra, sold another 30,000 BTC from its reserves "in a last ditch effort to defend the peg."
That, however, was insufficient to restore UST's peg to the US dollar, as traders continued to sell the token for other stablecoins, resulting in a capital outflow from UST and lower prices.
As a result of the failed attempt to defend UST, LFG confirmed that the remainder of its reserves, which once totaled over $3 billion, have nearly vanished.
According to LFG, these funds will be used "to compensate remaining users of UST, smallest holders first."
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, according to LFG's statement.
It also comes after prominent blockchain figures, including Ethereum co-founder Vitalik Buterin, demanded that Terra compensate smaller UST and LUNA holders before its largest investors.
Following Monday's announcement, the price of UST dropped even lower, from 15 cents to 7 cents.
Apart from UST and LUNA, LFG has only about $80 million worth of other cryptocurrencies in its reserves at current prices, a pittance compared to its $10 billion target reserve at the start of the month.
By fLEXI tEAM