Luna Foundation Guard Spent $2.8 Billion Defending the $UST Peg

According to JS Held, a New York consulting firm has revealed that the Luna Foundation Guard (LFG) spent $2.8 billion defending its stablecoin $UST’s peg. The LFG disclosed the audit report via its Twitter handle. The audit was carried out to provide transparency and accountability in the aftermath of the Terra/LUNA crash earlier this year.

1/ Today, LFG releases the technical audit report conducted by JS Held, an experienced third-party auditing firm, providing full transparency into the trading, blockchain records, and efforts of LFG and TFL to defend the price of TerraUSD ($UST) between May 8th & May 12th, 2022.

— LFG | Luna Foundation Guard (@LFG_org) November 16, 2022

TerraUSD ($UST) is an algorithmic stablecoin backed by the Terra collateral token. A stablecoin is a coin that has its value linked to another asset, currency, or commodity. In this case, Terra was the asset backing $UST.

Unfortunately, $UST lost its $1 peg earlier this year due to manipulations by arbitrageurs. This event led to the collapse of the Terra ecosystem, bringing it to its knees. Despite the Luna Foundation Guard’s best efforts to save $UST, the token’s value was reduced to zero.

The demise of UST and LUNA, like the FTX scandal, had a detrimental impact on the crypto market and ecosystem. Several brokers, exchanges, and firms with funds in the Terra ecosystem were forced to declare bankruptcy.

The audit also reveals that Terra Labs spent most of its funds trying to defend its peg. There was no misappropriation of funds, contrary to popular belief at the time of the incident. Do Kwon, Co-Founder of Terraform Labs commented,

“While there have been multiple recent failures in crypto, it is important to distinguish between Terra’s case, where a transparent, open-source decentralized stablecoin failed to maintain peg parity and its creators spent proprietary capital to try to defend it, and failure of centralized custodial platforms where its operators misused other people’s money (customer funds) for financial gain”