Audit reveals Luna Foundation Guard spent $2.8B to defend UST peg in May

A Nov. 9 technical audit report submitted by JS Held revealed the Luna Foundation Guard spent $2.8 billion to defend UST’s peg between May 8 and May 12.

1/ Today, LFG releases the technical audit report conducted by JS Held, an experienced third-party auditing firm, providing full transparency into the trading, blockchain records, and efforts of LFG and TFL to defend the price of TerraUSD ($UST) between May 8th & May 12th, 2022.

— LFG | Luna Foundation Guard (@LFG_org) November 16, 2022

According to the report, Terraform Labs also spent $613 million of its capital to defend the UST peg.

JS Held wrote that LFG’s May 16 tweets about its defense operation were accurate except for certain tweets based on estimates — the auditor said the estimates did not affect the calculation of the ending balances.

According to the Foundation’s dashboard, its reserve is left with $83.93 million, with its Bitcoin reserve worth $5.24 million.

The financial auditor concluded that:

“UST was trading at such a low price that UST holders were attempting to arbitrage by swapping 1 UST for $1 worth of LUNA. As UST was burned, more LUNA was minted by the protocol in response. Since the price of LUNA was also declining, all of the UST holders attempting to swap UST for LUNA created a significant sudden increase in LUNA’s supply. This increase, along with other market factors, caused LUNA’s price to further decline.”

Luna Foundation says audit disproves rumors

Speaking on the revelation, Luna Foundation said the audit dispels rumors that there was embezzlement of funds or that the funds were used to profit insiders.

According to the Foundation, all peg defense activities occurred in the open markets, with no special preference for any party.

The Foundation also wrote that its funds were not frozen. It added that they are kept in self-hosted wallets that have not been moved since May 16.

The embattled founder of the failed stablecoin, Do Kwon, said:

“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.“

Do Kwon, alongside Luna Foundation and Terraform Labs, is currently faced with regulatory scrutiny across several jurisdictions. Kwon’s location is unknown, and he is on Interpol’s Red Notice.