- The Luna Foundational Guard and Terraform labs spend $3.4 billion defending the Terra USD peg
- A third-party audit has revea
- The Terra ecosystem collapsed with the loss of $60 billion in holdings
The two main parties behind Terra USD (UST) spent over $3.4 billion trying to prop up the stablecoin’s peg prior to its collapse. This is the result of an audit by JS Held, a New York-based consultancy firm hired to conduct a third-party audit on the firms involved. The vast majority of the capital ($2.8 billion) was spent by the Luna Foundational Guard (LFG), while the remaining $613 million was used by Terraform Labs, with all their efforts eventually counting for nothing.
Deploying More Capital
It was no secret that when LUNA and UST were entering their death spiral in May this year, the LFG was pumping billions of dollars into trying to prop it up, with a now infamous tweet from founder Do Kwon summing up the situation:
As a reminder, the UST coin was an algorithmic stablecoin, the kind that looks like it will soon be banned in the U.S. Such stablecoins do not have any 1:1 backing from a fiat currency and are pegged by market forces, with incentives to traders to keep the peg level.
Prior to UST, other algorithmic stablecoins had already failed, including Basis Cash, one of whose co-founders was one ‘Rick Sanchez’ – whose real name was…Do Kwon. This launched in December 2020 but lasted just two months. Other failed attempts include Iron Finance and Empty Set Dollar.
Do Kwon’s Plan Badly Exposed
Clearly, Kwon thought that the failure of Basis Cash would be remedied with UST by the creation of a multi-billion-dollar fund that would step in in a time of crisis, which saw the LFG accumulate some ₿40,000 among other cryptocurrencies.
However, as we saw in May, the Terra USD design was exposed as being fundamentally unsound, with, as we now know, $3.4 billion not enough to save the ecosystem once it had started collapsing.
The audit lays bare both the extraordinary amount of money that the two organisations spent on trying to stop their Titanic from sinking, and also how badly they misjudged the potency of their capital.