Following the collapse of Terra's UST stablecoin, questions have been asked about the fate of the $3.5 billion in Bitcoin held in reserve to help prevent exactly such an outcome. We use Elliptic's blockchain analytics tools to follow the Bitcoin reserves as they were moved following UST's fall.
This week saw the collapse of TerraUSD (UST), the algorithmic "stablecoin" created by Terraform Labs. Intended to maintain a peg to the US Dollar, the value of 1 UST plummeted from $1 to a low of just $0.04, leading to billions of dollars in losses for UST holders. Perhaps foreseeing the failure of the mechanism intended to maintain the peg, Luna Foundation Guard (LFG), a non-profit organization formed to support the growth of the Terra ecosystem, announced that it would purchase up to $10 billion in Bitcoin and other cryptocurrencies, to act as a reserve that would back the UST stablecoin. Between January and May this year, 80,394 BTC worth $3.5 billion at the time, were purchased by LFG. When the value of UST began to drop on May 9th, LFG announced that it would begin to dispose of its Bitcoin reserves and purchase UST - in order to try to maintain UST’s peg to the US Dollar. Over the course of the next day the bitcoin addresses holding LFG’s reserves were emptied. As the UST stablecoin’s value has continued to plummet, questions have been asked about the fate of the LFG bitcoin reserve, and whether it was really used to support the stablecoin’s value. Here we use Elliptic’s blockchain analytics software to follow the money trail and discover the fate of the LFG bitcoins.
On the morning of May 9, LFG announced that it would “Loan $750M worth of BTC to OTC trading firms to help protect the UST peg”. Terra creator Do Kwon later clarified that the bitcoin would be “used to trade”.