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Audit Shows Terra Groups Spent $3.4B to Defend Dollar Peg in UST

Terraform Labs Commissioned Study to Quantify Support for Stablecoin During May Crisis

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Audit Shows Terra Groups Spent $3.4B to Defend Dollar Peg in UST

In a bid to quell speculation about how Terra defended its stablecoin UST during its meltdown last May, two organizations connected with the failed blockchain ecosystem spent a whopping $3.4B in May to support its dollar peg, according to an audit released Wednesday.

Defending the Peg

The Luna Foundation Guard (LFG), a non-profit which formed in January, sold almost $3B of Bitcoin and stablecoins to maintain UST’s peg to the dollar between May 7 and May 12, according to the audit, which was performed by the firm JS Held on behalf of Terraform Labs.

LFG’s Balances. Source: JS Held

Terraform Labs, the company behind the Terra blockchain, also spent $613M in a vain effort to keep UST trading at a $1, according to the findings.

Influencers like DCinvestor had called Do Kwon, the co-founder of Terraform Labs, to produce audited records of LFG’s BTC in May when UST was collapsing. The audit was intended to quell speculation about LFG’s Bitcoin deposits and address concerns about how the Terra ecosystem handled UST’s collapse.

Peg Parity

Kwon said on Twitter that the audit clarified how LFG spent its funds. “The report shows that all LFG funds were spent to defend $UST’s peg parity with the Dollar as declared, and that LFG’s remaining balances are the only funds remaining,” Kwon tweeted on Wednesday.

Not everyone is happy with what the audit shows.

Fatman, a pseudonymous researcher well-known in crypto circles, said that the report didn’t include records of how the BTC was traded to defend the UST peg.

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According to Fatman, Jump Trading, a firm specializing in algorithmic and high-frequency strategies, received 47,189 BTC to purchase UST, but didn’t provide records for how the firm carried out the trades. “This is a big deal, as Jump are known to be bad actors,” the researcher added.

Fatman had other problems with the audit, saying that there was no explanation about why TFL was both buying and selling UST at the same time in May.

Solid Proof

“Thus far we’ve been operating under the assumption that the LFG funds were *not* stolen, and I’m glad to see solid proof of this, even if only partial,” the researcher tweeted, before adding that the information in the audit doesn’t change what he called the “ methods of fraud,” which Kwon and others at TFL allegedly enacted.

Along with Kyle Davies and Su Zhu, whose crypto hedge fund Three Arrows Capital went bankrupt in July, Do Kwon has recently emerged on social media in the wake of the collapse of FTX, formerly the No. 2 cryptocurrency exchange worldwide.

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In contrast to FTX, UST’s code is open source, meaning it was possible to see the stablecoin’s vulnerability to depeg.

Kwon himself came on The Defiant’s podcast roughly a year before UST’s collapse and conceded that the stablecoin’s design was more fragile than an overcollateralized one like MakerDAO’s DAI.

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