Luna Foundation Guard (LFG) Claims No Fixed Timeline For Returning User Funds

TerraUSD’s de-pegging from the dollar marked the first time when the algorithmic stablecoin slipped below $1 since it embarked on a highly-publicized bid to build Bitcoin and Avalanche reserves. This made the token dip to $0.985 before recovering to the $1 mark.

Price estimates from CoinMarketCap showed that following the first “de-peg”, TerraUSD (UST) lost its dollar peg for the second time in three days, falling to as low as $0.65.

Now, after the de-pegging, the Luna Foundation Guard, or LFG, a fund focused on the Terra ecosystem, has declared that it cannot provide a timeline to distribute assets to users. On October 7, LFG tweeted quoted “ongoing and threatened litigation” as one of the reasons for not doing so. 

LFG wrote, “The Foundation is looking to use its remaining assets to compensate remaining users of $UST, smallest holders first. We are still debating through various distribution methods, updates to follow soon.”

It is noteworthy that UST’s reserves held more than $4 billion in assets prior to the market downturn due to the de-pegging in May. The value of assets with the fund was down to roughly $104.84 million at the time of publication.

The fund exclaimed, “Distribution is not possible at this time. While these matters are outstanding, there can be no timeline established for resolution. We will not stop advocating for our ability to follow through on these initial plans, and those waiting will be the first to know of new developments.”

As expected, users were relying on the network for speedy compensation, and hence, they criticized the fund’s announcement of an undefined timeline for the redistribution. The crypto Twitter users also condemned Terra co-founder Do Kwon for his alleged hand in the Terra LUNA collapse.

A user SvNem26 wrote, “If you guys wanted to do it, you would have already done it a long time before litigations. You had enough time but instead, DK was blaming exchanges for not providing data.”

It is noteworthy that South Korean authorities have been running an investigation against Do Kwon and Terra associates after the big collapse. In September, a South Korean court issued an arrest warrant against Kwon too.

Later, Interpol added Do Kwon’s name to its Red notice list. The co-founder’s location still remains unknown, contrary to his tweet saying that he was “making zero effort to hide”, and his insistence that he was not on the run. 

On October 5, prosecutors also issued an arrest warrant for Terraform Labs’s business head Yoo Mo. He was presented before a judge, who reportedly dismissed the legal action. South Korea’s Ministry of Foreign Affairs also asked Do Kwon to submit his passport by October 20 or his passport would be invalidated.

Price Drop Jeopardizes UST’s Stabilizing Mechanism

An algorithmic stablecoin, UST, works with LUNA to float around a price of $1 using a set of on-chain mint and burn mechanics. These mechanics work to ensure traders can always swap $1 worth of UST for $1 worth of LUNA, which has a floating price and is meant to serve as a shock absorber for UST’s price.

Luna’s price decline takes down its market cap below that of UST. This puts the foundation of UST’s entire stabilizing mechanism into jeopardy because it means a Terra bank run could restrict users from redeeming their $1 of UST for $1 of LUNA.

In response to LFG’s tweet saying they are unable to pay back assets yet, FatMan commented “According to you, no TFL or LFG funds have been frozen. Why is distribution not possible? Be specific and show evidence. No, “threatened litigation” is not a valid answer. You scammed people and committed to a refund. Fulfil your promise.”

FatMan also wrote sarcastically, “Sorry, we can’t pay back the money we scammed you out of five months ago because you said you’ll sue us for the money we scammed you out of after not receiving any updates for five months. I’ve seen some bad excuses but this one takes the cake.”