Luna Foundation Guard has now dumped $2.4 billion from its Bitcoin reserves in failed attempt to defend TerraUSD peg

May 16, 2022, 2:51 PM UTC

Luna Foundation Guard, the second largest known holder of Bitcoin, liquidated almost its entire reserves last week worth billions in a failed attempt to defend the Terra UST stablecoin peg.  

Ever since the collapse of UST and its sister governance token Luna, designed to maintain the peg through an algorithmic process of manipulating the latter’s money supply, the entire crypto community wanted to know just one thing: what happened to LFG’s prodigious Bitcoin holdings?

“Where is all the BTC (Bitcoin) that was supposed to be used as reserves?“ asked Changpeng “CZ” Zhao, head of crypto platform Binance. “Shouldn’t those BTC be ALL used to buy back UST first?”

Chain analysis firm Elliptical tracked movements in LFG’s Bitcoin, concluding they had all been shifted to centralized exchanges Binance and Gemini, where the trail promptly ran cold.

On Monday, the crypto community finally got an answer, when LFG posted an update to its 91,000-plus followers in a long Twitter thread

Of the 80,394 Bitcoin worth $2.4 billion it held as of May 7th just prior to Terra losing its dollar peg, only 313 are still held in reserve.

The rest were liquidated between May 8th and May 10th, when Bitcoin traded between $31,000 and $35,000. 

‘Heartbroken about pain’

For investors in Bitcoin, this could be bullish as it removes uncertainty hanging over the price amid fears a whale as big as LFG would dump its holdings to defend the peg.

After LFG’s Bitcoin holdings surpassed Elon Musk’s Tesla earlier this month, only Michael Saylor’s Microstrategy, with its 129,218 Bitcoin in reserves, was known to hold more.

On Monday, Bitcoin fluctuated around the $30,000 mark. 

For Luna holders, however, Monday’s update suggests there is little remaining value left in the project apart from roughly $65 million in Avalanche, another $12 million in Binance tokens and the remaining $9.4 million in Bitcoin. 

Reserves totaled $93.4 million, according to the most recent information from LFG.

On Monday, Binance founder CZ said his platform had locked up, or “staked”, about $12 million in UST to validate transactions on the Terra blockchain.

He said he would ask the Terra project team “to compensate the retails users first, Binance last, if ever,” in order to make the bulk of small retail investors that lost money whole again.

For Do Kwon, whose wife recently received police protection, there was little left to do but claim neither he nor any affiliated institutions try to earn profits by selling Terra UST and Luna during the collapse.

The South Korean native had gained a reputation for hubris, mocking critics that pointed to fatal flaws in the construction of his algo stablecoin. Only two months ago, he boasted his creation would eliminate one of Terra UST’s competitors, Maker Foundation’s Dai.

“I am heartbroken about the pain my invention has brought on all of you,” the self-described “Master of Stablecoin” posted to Twitter on Saturday.

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