Luna Foundation Guard Reserves Decimated By Terra Crash

The Luna Foundation Guard (LFG) revealed on Monday that the recent Terra crash, and its measures to support UST had wiped out most of its reserves.

Its holdings now stand at about $260 million- a far cry from the over $4 billion the LFG commanded less than two weeks ago.

It will now deploy this remaining capital towards repaying UST holders, with smallest wallets to be compensated first. But the LFG did not specify how this compensation will take place.

The LFG’s move comes amid growing calls from the Terra community to protect its most vulnerable holders. The move was also foreshadowed by a high-ranking member of the LFG.

LFG reserves decimated by Terra crash

The $260 million of reserves the LFG now holds will likely be insufficient to effectively repay all UST holders. Terra community proposals that called for redistribution of the reserves estimated their value to be much higher, around at least $1.5 billion.

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.

In early-May, the LFG had  over $4 billion worth of reserves to back the UST peg. In a Twitter thread on Monday, the organization said it had converted nearly all of its Bitcoin holdings into UST to support the peg- which was over 80,000 BTC tokens.

The LFG now has just 313 Bitcoin ($9 million) to its name. It also has 39,914 BNB ($12 million), nearly 2 million AVAX ($66 million), 1.8 billion UST ($180 million), and 222.7 million LUNA, most of which is staked with Terra’s validators.

LUNA, UST deepen losses after LFG announcement

While both of Terra’s tokens have lost most of their value since last week, they deepened their losses after the LFG’s announcement.

UST is now trading at just 12 cents, while LUNA is several decimal places below zero. The fact that the LFG has scant reserves left to support the project could indicate a complete loss of faith for holders.

The LFG’s low reserves will also make hard forking and launching a new version of Terra far more difficult without outside capital. The blockchain’s only option now may be to compensate holders and shut shop.

With more than five years of experience covering global financial markets, Ambar intends to leverage this knowledge towards the rapidly expanding world of crypto and DeFi. His interest lies chiefly in finding how geopolitical developments can impact crypto markets, and what that could mean for your bitcoin holdings. When he isn’t trawling through the web for the latest breaking news, you can find him playing videogames or watching Seinfeld reruns.
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