How the UST and LUNA Crashes Affected Terra’s Bitcoin Reserve

The fate of the billions of Bitcoin that the Luna Foundation Guard claimed to have deployed to protect UST is now known according to new study.

The nonprofit Luna Foundation Guard (LFG), which is in charge of monitoring the health of Terra’s ecosystem, decided to use $1.5 billion in Bitcoin and UST from reserves to repeg Terra’s UST stablecoin to the US dollar last weekend as it began to show the first signs of instability by slipping from its dollar peg to $0.985.

The action represented the implementation of a code-red plan that LFG had been developing for months: Since January, LFG had accumulated over $3.5 billion in Bitcoin, Avalanche, LUNA, and UST reserves to use if the price of UST ever fell below $1. According to LFG, the lent funds would be used to purchase substantial quantities of UST, creating buy pressure that would drive the stablecoin’s price back up to its target level.

However, on Monday, hours following the loan, UST fell and continued to fall. LFG’s reserves were nearly depleted by Tuesday as the price of UST plummeted to previously unheard-of lows. However, the stablecoin was not saved: By the end of the week, UST had fallen to $0.13, wiping out $40 billion in value and erasing Terra’s native token LUNA in the process.

What exactly happened to that $3.5 billion, given Terra’s backstop strategy’s tragic failure? Where did it leave?

A Bitcoin account connected to LFG transmitted around $750 million worth of Bitcoin to a new address on Monday, according to blockchain analytics firm Elliptic, hours after LFG announced the $1.5 billion loan. Later that day, multiple wallets connected to LFG deposited an additional $930 million worth of Bitcoin to the same new address. Then, 52,189 Bitcoin totaling more than $1.6 billion were transferred from the old address to a single Gemini account.

The move left LFG’s reserves with 28,205 Bitcoin, which at the time were valued around $875 million. The entire sum was sent to a Binance account early on Tuesday.

Unknown is if the Bitcoin in those Gemini and Binance accounts was sold off to purchase significant quantities of UST. It is impossible to determine whether such significant amounts of Bitcoin were sold or transferred to any of the other wallets that are still under LFG’s control.

Many people have started to openly doubt Terra and Terra co-founder Do Kwon’s activities during the past week in the wake of the calamity caused by the collapse of UST and LUNA.

UST was trading for less than one cent as of the time of writing and is regarded as being functionally worthless. However, the price of Bitcoin increased to above $20,000.

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