The Whereabouts of Terra_s Bitcoin Reserve after the Luna & UST Crash

Last week, we witnessed the most shocking market crash in the history of cryptocurrencies. Nothing could have prepared holders of LUNA and UST for what hit the market.

The UST is a stablecoin pegged at $1. Instead of being collateralized with actual fiat USD, it was backed by a smart contract algorithm set to automatically maintain the UST/$1 peg using market activities. The Terra Reserve was set up to insure and "foolproof" the stability of this algorithmic stablecoin against a time such as the recent market crash.

While the Terra community chooses to forge ahead for new beginnings, persons whose money was lost in the LUNA/UST crash still have questions. One of such questions is, "what's the whereabouts of Terra's Bitcoin Reserve?".

After the market crash, there were reports of Bitcoins (BTC) transfers in the LFG reserves to other wallets for trading. Despite this, the UST/LUNA market continues to plummet.

Keep reading to find out what happened to the $3.5 billion worth of BTC in the Terra Reserve.

The Terra Bitcoin Reserve

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The Terra Bitcoin Reserve is a project by Luna Foundation Guard (LNG) — a non-profit organization dedicated to overseeing the growth of Terra. The reserve was created to ensure that UST, an algorithmic stablecoin, is backed by a trusted cryptocurrency. The crypto assets in the Terra Reserve were to ensure that the UST was constantly pegged at $1.

At conception, the Terra reserve was to be composed of $10,000,000,000.00 (ten billion dollars) worth of Bitcoin and other crypto-assets. This reserve would represent assets to be deployed to revive the UST stablecoin in time of a crash. Before the crash, 80,394 BTC worth $3.5 billion had been purchased for the reserve along with other assets like Avalanche, LUNA, and UST.

After the LUNA/UST Crash

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Last week, the value of 1 UST crashed from $1 to a mere $0.04. This led to an investment loss estimated at 42 billion dollars for UST holders.

Immediately after the crash of Terra’s UST algorithmic stablecoin, discussions on how the $3.5 billion worth of Bitcoin (BTC) held in reserve would be deployed sprung up.

After that, there were records of the transfer of the $3.5 billion in Bitcoin reserves. This move was reported to have been conducted to sell off the majority of the reserve to support the UST stablecoin. It was an unsuccessful move.

Currently, an estimate of $85 million in crypto assets remains in the Terra reserve.

The Whereabouts of Terra's Bitcoin

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Reports from Independent Analysis:

Elliptic, a Blockchain Analytics company, carried out an analysis to trace the movement of the funds. Elliptic reported that 52,189 bitcoins were moved over a series of transactions from accounts associated with LFG to an account in Gemini, while 28,205 bitcoins were transferred to Binance. Tom Robinson, the co-founder and the chief scientist at Elliptic, further stated that tracing the movement of the funds beyond the aforementioned wallets is "not possible".

According to Robinson, it is impossible to identify if the assets were sold or moved to other wallets yet to be traced. The Elliptic team could only trace the transfers to the point where the funds were sent into the exchanges.

Official Reports from the LUNA Foundation Guard (LFG)

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The Luna Foundation Guard has not been silent. On the 9th of May, the LFG made an announcement on the issue on their Twitter page.

In the statement, they reassured stakeholders that they were still working in line with their mandate. Based on this, they would move to proactively preserve the strength of the $UST peg and the Terra ecosystem even in the face of volatility and uncertain macro conditions in the legacy markets.

They further reported that the LFG Council had voted to loan $750 million worth of BTC to OTC trading firms for the purpose of protecting the UST peg. Beyond that, they would loan 750 million UST towards accumulating BTC as market conditions normalize.

Additionally, they stated that the traders in the ecosystem will trade the capital on both sides of the market with the intent of protecting the UST peg and accumulating BTC. By their calculations, these moves will lead to a maintenance of parity of the LFG Reserve pool (denominated in BTC) as market conditions improve.

Soon after their statement, Do Kwon, the CEO of Terra Lab, clarified that the funds would be used to trade, to signal peg strength to the market in view of the "capitulation sentiment".

Suspicions

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Despite the reported use of the Terra Bitcoin Reserve for trading for depegging, the value of the UST continues to plummet. Questions have arisen as to whether the LFG Bitcoin reserve was truly used to support the stablecoin’s value.

In response to voiced suspicions on the LUNA/UST crash being a rug pull, Kwon, Terra Labs CEO, denied making any profit from the crash.

Conclusion

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Aside from Elliptic's data-backed information on the transfers, and the reports from LFG, the exact details of how the $3.5 billion in Terra Bitcoin Reserve were spent remain a mystery. The last resort for clear answers is documentation of how the BTC reserves were used during the depegging event, to be provided by the Luna Foundation Guard (LFG) team.


At the time of this writing, Luna is currently traded at $0.00017 with a $1,169.41M market cap.



Author: Gate.io Observer: M. Olatunji
Disclaimer:* This article represents only the views of the observers and does not constitute any investment suggestions.
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