TerraUSD Organisers ‘Spent $2bn’ In Bitcoin To Maintain Value

The organisation founded to maintain the stability of TerraUSD has said it spent more than $2 billion (£2bn) of Bitcoin reserves last week in a failed attempt to maintain the so-called stablecoin’s 1:1 peg to the US dollar.

The Luna Foundation Guard (LFG), in a statement released on Twitter, said this process wiped out virtually all of its Bitcoin reserves, which dropped from 80,394 Bitcoin, or about $2.4bn, as of 7 May to 313 Bitcoin, or about $9.3m, on Monday.

The LFG is a nonprofit organisation which, like TerraUSD developer Terraform Labs, is incorporated in Singapore.

The organisation is part of a complex system that was designed to maintain TerraUSD at its US dollar peg.

Selloff

This failed spectacularly last week, with TerraUSD – representing about $40bn in market capitalisation – dropping from $1 to below 20 cents.

The Luna token, designed to be a “shock absorber” to help maintain TerraUSD’s stable value, meanwhile crashed from $80 to below $0.002.

The value of TerraUSD fell further on Monday following the LFG’s statement, from around 14 cents to around 8 cents, before recovering slightly.

The LFG said its remaining assets would be used to compensate investors, beginning with the smallest holders.

The group said it initially sold off most of its Bitcoin as TerraUSD’s stability was beginning to erode early last week.

Stablecoin risk

On 8 May it transferred more than 50,000 Bitcoin, or about $1.5bn, “to trade with a counterparty”.

It said the funds were used for “directly executing on-chain swaps and transferring $BTC to a counterparty to enable them to enter trades with the Foundation in large size & on short notice”.

On 12 May the group said another 30,000 Bitcoin, or about $900m, of its reserves was sold off by Terraform Labs “in a last ditch effort to defend the peg”.

The LFG said the remaining funds would be used “to compensate remaining users of UST (TerraUSD), smallest holders first”.

Two European regulators on Monday singled out stablecoins such as TerraUSD in their criticism of the broader cryptocurrency market.

Fabio Panetta, a member of the executive board of the European Central Bank, said stablecoins were vulnerable to runs, while Bank of France governor Francois Villeroy de Galhau told a press conference stablecoins were a particular source of risk.