May 22, 2024

Bitcoin fell below the $26,000 level since December 2020. (Photo credit should read CFOTO/Future Publishing via Getty Images)
CFOTO | Future Publishing via Getty Images

Investors have been eager to find out what happened to the more than $3 billion in bitcoin bought up by crypto firm Terra to back its failed stablecoin. Now, they’ve got their answer.

Luna Foundation Guard, a fund set up by Terra creator Do Kwon, said Monday it spent almost all of the bitcoin in its reserve last week in a futile attempt to save terraUSD — or UST, for short.

The foundation had accumulated a total of more than 80,000 bitcoins, which was worth over $3 billion last week. Kwon had promised to use the bitcoin in the event of a dramatic fall in the value of UST.

In a series of tweets, Luna Foundation Guard said it transferred 52,189 bitcoin to “trade with a counterparty” as UST fell below its intended $1 peg. A further 33,206 bitcoin was sold by Terra directly in a last ditch effort to defend the peg, the foundation said.

As of Monday, Luna Foundation Guard had just 313 bitcoins left in its reserve, worth approximately $9.3 million. The firm said it would use the remainder of its assets — which include some other digital tokens, like BNB and avalanche — to “compensate remaining users” of UST.

“We are still debating through various distribution methods, updates to follow soon,” Luna Foundation Guard said.

UST is what’s known as an “algorithmic” stablecoin. Unlike tether and USDC, which hold fiat assets in a reserve to back their tokens, UST relied on a complex mix of code, combined with a floating token called luna, to balance supply and demand and stabilize the price.

When UST began to drop below $1 last week, luna also started to sell off, resulting in a vicious cycle that caused UST to plunge to less than 30 while luna became worthless. UST is now worth just 9 cents, according to CoinGecko data.

The collapse of Terra’s tokens rippled through crypto markets, wiping out more than $200 billion of wealth in a single day. Bitcoin on Thursday briefly plunged bitcoin fell below $26,000, its lowest level since December 2020.