Terra-ble Reserves

Market Meditations | May 16, 2022

More than 1 week ago, the Luna fiasco started. If something such as this ever happened, they were supposed to be able to go into the reserves and consequently give more stability to their stablecoin if it fell off the dollar peg. Let’s take a closer look at the $3.5 billion Terra reserve and what Elliptic (blockchain analytics firm) has uncovered.

  • $3.5 billion worth of Bitcoin was being held, partly, to defend and support TerraUSD (UST) stablecoin.
  • On May 9, the Luna Foundation Guard (LFG) announced that it would loan $750 million worth of BTC to OTC trading firms to help protect the UST peg.
  • At this same time, around $750 million worth of BTC was sent to a new address. Later that evening, another $930 million was sent to the same address.
  • On May 13, Terra Labs CEO Do Kwon said “We are currently working on documenting the use of the LFG BTC reserves during the de-pegging event. Please be patient with us as our teams are juggling multiple tasks at the same time.”
  • Do Kwon claims that neither he nor any of his team profited from this unfortunate event.
  • While this money was all sent to the same address, it is not all that clear what happened with the money. The reserve was supposed to be used to purchase UST and push the price back up to $1.

The tricky thing, according to some analysts, is the difficulty in identifying whether the reserve was sold to support UST price, or if they wanted to “cash out.”