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Luna Foundation Guard (LFG), a non-profit organization formed to support the growth of the Terra ecosystem, has yet to answer a crucial question about its bitcoin reserves after Terra’s collapse.

LFG accumulated a total of 70,736 bitcoins (worth over $2 billion) as “forex reserve” for Terra’s algorithmic stablecoin UST, which has recently severely depegged and created havoc in the crypto market. 

While LFG acquired those bitcoins to save UST, it couldn’t. UST, supposed to be worth $1 at all times being a stablecoin, has lost almost all of its value. It is currently worth roughly $0.12.

In the end, LFG’s bitcoin reserves failed to shore up UST’s peg against the dollar. Out of the total bitcoin reserves, LFG recently provided a “loan” of $750 million in bitcoin to over-the-counter trading firms and market makers “to help protect the UST peg.”

That means LFG should still have over $1.2 billion worth of bitcoin in its reserves. But thus far, the organization has not provided any details on those funds.

LFG’s publicly-known wallet address shows zero bitcoin balance. This address was announced on May 9, with the group saying:

Below is the new LFG $BTC wallet address: https://t.co/9t0NX3VEMI

Last clip withdrawn by the LFG was ~37K BTC. Similar to the last deployment, it has been loaned to MMs.

Very little of the recent clip has been spent but is currently being used to buy $UST.

Updates coming.

— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022

Where is the bitcoin?

As mentioned above, LFG’s wallet address has thus far received 70,736 bitcoins in total, worth over $2 billion. It has also sent out that entire amount, showing the balance as zero.

It is not clear where exactly it has sent those funds. The Bitcoin blockchain doesn’t label private wallets on-chain.

“It is strange that there’s no clear accounting on what happened to those funds,” said Mika Honkasalo, a former research analyst at The Block and now an independent crypto researcher. “$750 million was given to market makers and the rest has been moved from the treasury address — but there’s no indication what has been done with them. This should be a matter that is easy to clear up.”

Some outlets have reported that LFG accumulated a total of 80,394 bitcoin in its reserves. Wallet address of those extra 9,658 bitcoins aren’t publicly known, according to The Block Research, and those bitcoins also remain unaccounted for by LFG.

Furthermore, LFG has also not provided the details of the $750 million loan, such as who the borrowers are, the interest rate, and the loan’s current status.

According to Honkasalo, the entire bitcoin reserves could have been sold by LFG since that was supposed to be done to shore up UST’s peg. Or, some of it could been reserved for some future use that is undecided or unannounced — “a Hail Mary to keep the foundation’s development efforts going in the future,” said Honkasalo.

Amid the UST chaos, LFG was said to be seeking even more funds, an additional amount of over $1 billion, to defend the stablecoin’s peg, but those efforts seem to have stalled since LFG hasn’t made any announcements in that regard.

The Block reached out to LFG for comments, but its representative cited “a high volume of requests” and referred The Block to follow Twitter for the latest updates.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto.com, a popular mobile app and exchange, halted trading of Luna on Thursday after detecting an error that quoted the wrong price for the token for the Terra blockchain. 

Buy and sell trades would be reversed, the company said in a post on its website. Users impacted by the event are being notified by email and will be credited $10 in CRO, which is the token used on the platform. 

The news came amid a week of crisis for Luna and the Terra network.

Earlier this week, Luna holders watched as its related stablecoin TerraUSD (UST) lost its peg to the US dollar. Luna’s price dropped more than 90% and holders of the token were unable to sell, The Block reported at the time.

The price of Luna dipped even lower yesterday as Terraform Labs CEO Do Kwon scrambled to figure out how to restore UST’s peg. Binance, which facilities Luna trading more than other crypto exchanges, reported that Luna fell to a low point of $0.21, The Block reported. Binance has suspended trading in Luna.

This morning, Luna’s supply surged to 6.5 trillion coins before the Terra blockchain was halted for the second time in the past day in an effort to revive the ecosystem. The supply has increased 17,000 times in the past three days. Its price has crashed from $60 to a fraction of a cent.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

With angry investors facing heavy losses following TerraUSD’s dramatic de-pegging this week, users on the Terra Research Forum and Reddit are now asking where Terraform Labs CEO Do Kwon is and even calling for his arrest.

The Terra crypto ecosystem was thrown into chaos this week when its TerraUSD (UST) algorithmic stablecoin de-pegged sharply from the US dollar. The crisis has seen both the price of UST and its related Luna token tumble, resulting in billions of dollars of losses for investors. 

Normally a prolific Twitter user, Kwon hasn’t posted on the social network since Wednesday. His last personal post was a thread reassuring investors that Terra was “here to stay” and that its return to form would be “a sight to behold.” Updates continue to trickle through from the company’s official account.

Kwon didn’t respond to requests for comment from The Block sent to Terraform Labs by email. 

In the US, Permissionless attendees who were hoping they might get answers from Kwon in person at the conference in Florida next week have also been left disappointed. Initially slated as a speaker on the panel “Stablecoins! Crypto’s Killer App,” Kwon has been scrubbed from the event website’s speaker list.

Kwon’s last known location was Singapore, where Terraform Labs and the Luna Foundation Guard are headquartered. That said, this is not confirmed and he hasn’t been spotted publicly in days.

Kwon’s family however are currently in his native South Korea. Last month his wife gave birth to their first child, a daughter named Luna, who he said was named after his “greatest invention.” 

On Friday, South Korean news outlet Money Today reported his wife is seeking emergency police protection after a man was able to enter their apartment complex in the Seongdong District of Seoul. According to the report, the intruder knocked on their door on Thursday evening and demanded to know whether Kwon was home before fleeing.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Kava Network’s native decentralized stablecoin USDX has lost its parity with the US dollar. This stablecoin has a market cap of more than $115 million, according to CoinGecko.

USDX dipped to almost 0.55 on Wednesday, and is currently changing hands at $0.65 — well below its supposed dollar peg.

What may have caused USDX to lose its dollar parity is not clear. Unlike algorithmic stablecoins such as those provided by Terra, Kava Network‘s USDX can be minted as a loan backed by collateral reserves. 

A likely explanation coming via Twitter from Kava Labs, the development team behind the stablecoin, is that USDX lost the peg because of its exposure to terraUSD (UST) — an algorithmic stablecoin that recently collapsed. UST accounted for some of the collateral backing USDX, along other assets including kava, cosmos, wrapped bitcoin and ether.

As UST plummeted to $0.10, losing more than 90% of its value in a week, it caused collateral liquidations that dragged USDX along. The liquidations probably contributed to USDX dislocating from the one-dollar peg, according to Scott Stuart, co-founder and CEO of Kava Labs, the development team working on the stablecoin

Stuart claims USDX will return to the peg because it is not an algorithmic token like UST.

“USDX is not UST. Once UST is out of the system, USDX is anticipated to go back to its peg,” Stuart added. 

“UST has (obviously) significantly de-pegged and has promulgated some risk to downstream protocols that use it,” Stuart said, adding that the UST risk in Kava was isolated and could be tolerated.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Mykhailo Fedorov, Vice Prime Minister of Ukraine and Minister of Digital Transformation of Ukraine, on Thursday tweeted out support for Avatars for Ukraine, a non-fungible token (NFT) project directly benefiting humanitarian and defense tactics in Ukraine. 

The project involves 70 digital artworks that emerged as a result of the Russia-Ukraine war, featuring Ukrainian imagery and resistance to Russian forces. All proceeds from digital art sales fund Ukrainian war endeavors. Avatars for Ukraine is approved by the Ukrainian Ministry for Digital Transformation and will release its first NFT on May 19. 

This is not the first time that Ukrainian officials adopted blockchain technology to fund efforts for the war. In April of this year, the Ukrainian government launched a website for people to buy and sell NFTs that benefit Ukraine’s war efforts in addition to raising over $100 million in crypto donations. 

Avatars for Ukraine also joins a trend of NFT projects helping to donate funds to charity, usually involving some or all of the proceeds of NFT art directly benefiting a charitable organization.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Mike Novogratz’s Galaxy Digital released a company update on Friday that gives visibility into its capital and liquidity position amid a frenzied crypto market tied to the meltdown of cryptocurrency Luna and associated algorithmic stablecoin TerraUSD (UST). 

Galaxy Digital — an early backer of Terraform Labs and Luna — said in a release it “believes that the current digital asset and broader market conditions warrant providing shareholders, counterparties, and clients intra-quarter visibility regarding its capital and liquidity position, as well as its operating resilience.”

The company said it has a liquidity position of about $1.6 billion, including $800 million in cash and an additional $800 million in cryptocurrencies. Meanwhile, quarter-to-date net comprehensive income is expected to come in at a loss of $300 million, a decline of 12% from March 31, according to the company. 

UST, an algorithmic stablecoin built on the Terra blockchain, unraveled this week, sending the price of Luna to nearly zero and the broader crypto market into a tailspin. 

The news comes a few days after Galaxy announced a share repurchase plan, which would buy back 10.6 million shares over the next 12 months. 

Galaxy is an early Terra backer, having invested in a January fundraise alongside Coinbase Ventures, Pantera Capital and Arrington Capital. Novogratz famously tweeted out a tattoo of a wolf howling towards a moon with a banner with the word “Luna” adjacent to it. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

As Terra and Luna spiral, lawmakers are finding themselves pulled into the crypto orbit.

Stablecoins have been a priority for US lawmakers since November. Following TerraUSD’s collapse this week, Congress is suddenly facing the issue of algorithmic stablecoins. 

“This proves that algorithmic stablecoins are probably the riskiest of all,” Rohan Grey, a professor at Willamette University’s law school and author of several pieces of crypto legislation, told The Block. 

Maxine Waters (D-CA), chair of the House Financial Services Committee, is said to be curating a package of crypto legislation that may come out by the end of this Congress. 

Stephen Lynch (D-MA) told The Block that his ECash bill will be part of that package. Asked if the package would address algorithmic stablecoins, he said: “It’s gonna have to, right? That’s where we’re having all the problems.”

“It hurts the rest of the industry,” he said of Terra. “That has shaken confidence generally in stablecoins.”

The particulars, Lynch said, were still up for discussion. He mentioned a draft bill by Josh Gottheimer (D-NJ) as a possible base for legislation. Josh Gottheimer’s draft bill, the Stablecoin Innovation and Protection Act, effectively codifies the President’s Working Group (PWG) report’s request to limit stablecoin issuance to insured depository institutions — mostly banks. Still, both the PWG and Gottheimer deliberately left out algorithmic stablecoins. 

Introduced at the end of the last congress, the STABLE Act did not feature such a carve-out, nor did it have a chance to become law. Grey, one of the bill’s authors, objects to the PWG’s separation of algorithmic and non-algorithmic stablecoins. 

“It creates a false distinction between algorithmic stablecoins and others,” said Grey. “Each of them wants to promise the same thing; they’re all just coming up with different ways of saying ‘trust us.’”

Grey says he hopes that the Terra debacle will return algorithms to the forthcoming legislation. Still, that proposal may face an uphill battle, even among Democrats, who may lose their majorities in midterm elections. 

Hesitance to address algorithmic stablecoins in law has been a fairly bipartisan feature of proposed stablecoin legislation. There have been increasing suggestions that Republicans are looking at algorithmic stablecoins more as money market funds, which face regulation by the SEC and are accessible only via registered broker-dealers. 

Among Republicans a party line seems to be developing that the collapse of Terra and Tether’s subsequent slip should primarily fuel legislation on fiat-backed stablecoins. Algorithmics may have to wait.  

“It’s much more basic to regulate a true 1-to-1 where there is no risk of a run,” Representative Warren Davidson (R-OH) told The Block. “We can’t even get regulatory clarity on that. So I think we’re going to have to crawl before we walk and walk before we run.”

Senator Pat Toomey (R-PN), the leading Republican on the Senate Banking Committee, is driving the most prominent active piece of legislation addressing stablecoins. That draft bill, the Stablecoin TRUST Act, explicitly addresses “payment stablecoins,” establishing a category that deliberately avoids the algorithmic variety. 

“It does make sense that this episode with Terra would refocus attention on stablecoins generally,” Toomey told reporters on May 11. Still, from his perspective that hasn’t changed the aims of the Stablecoin TRUST Act.  

“It’s important to distinguish between algorithmic stablecoins vs the stablecoins that are backed by cash and cash equivalents or securities,” Toomey said. Of the Terra collapse, he said that “there is no systemic risk, certainly not right now and I don’t think in the future, because the nature of the algorithmic stablecoins is that they are not backed by an asset that would be subject to a systemic risk.”

That argument seems to have some resonance even among moderate Democrats. On May 12, Jim Himes (D-CT) pushed Treasury Secretary Janet Yellen on the level of risk of such a collapse. Yellen said that, for the time being, crypto’s risk did not seem to be “systemic” — a category that would have big ramifications for the Financial Stability Oversight Commission. 

In the Senate, Democrats do not seem optimistic about getting their vision for crypto legislation passed into law. 

“I know that because of the cryptocurrency lobby here, we can’t pass any legislation. Doesn’t mean we’re not trying legislatively,” Sherrod Brown (D-OH), chair of the Senate Banking Committee, told The Block on Tuesday. 

With a razor-thin majority in the Senate, Democrats have not been able to get much of anything passed without bipartisan backing. Brown, instead, put his faith in Gary Gensler, chair of the Securities and Exchange Commission, to take action. 

In the case of the stablecoins that are currently slipping, the SEC may well be the first responder. “It starts to look like it’s actively managed by a central authority which, under current definitions, looks a lot like a security.” Davidson said. “When you look at Terra, and frankly USD Tether, the SEC should probably be looking into those things pretty intensely.”

At the same time, there are rumors that the House Financial Services Committee is sending out inquiries to set up a hearing on Terra. Lynch told The Block that there would be a general hearing on stablecoins, “but of course Terra will come up.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Three Arrows Capital co-founder Su Zhu has broken his silence on the collapse of the stablecoin TerraUSD (UST) and its related token Luna, an ecosystem he had supported.

“This has been an incredibly humbling week and [it’s] difficult to find the right words,” he wrote on Twitter on Friday after UST, the algorithmic stablecoin at the center of the Terra blockchain, lost parity with the US dollar this week.

Zhu acknowledged that a number of things had gone wrong. He noted critics had flagged the potential risks, adding that the ecosystem should have moved more slowly in the hope of being safer.

He also said that criticisms of blockchain projects — something often dismissed by loyal supports as “fear, uncertainty and doubt” or FUD — should not be rejected. Instead it should be encouraged and any such criticisms should be met with actual refutations, rather than dismissal.

Zhu deleted the tweet about using Anchor. Image: CryptoDeleted.

Earlier this month, Zhu had encouraged his Twitter following to take out loans using their bitcoin as collateral. He suggested they should use the proceeds to buy UST and stake in Anchor Protocol for the 18-20% yield. Anyone who had followed this advice and had not sold would have lost practically all of their money and would not be able to pay back the loan. Zhu has since deleted this tweet.

Zhu apologized to his critics and said he should have been more cautious. 

Terra’s DAO moment

As for the blockchain itself, Zhu said, “This is Terra’s DAO hack moment.”

This refers to when the first decentralized autonomous organization (DAO) was set up on Ethereum, known as The DAO. It was hacked for $50 million in 2016. Yet becasue The DAO involved so much of the ether supply and the hack was effectively fixed in code, solving the problem meant modifying the network significantly. 

Developers eventually forked the chain currently known as Ethereum off the original chain. The original chain ended up surviving and is known to this day as Ethereum Classic.

Currently the Terra blockchain has been taken offline after the UST stablecoin lost its peg to the US dollar and this created a vicious cycle of supply increases and price decreases for its related token Luna. Currently the community is weighing up what to do next and how to bring the project back to life.

As for Zhu, he said, “I will not pretend to know what the future holds but I will do my part to help.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Binance CEO Changpeng Zhao has weighed in on the collapse of the stablecoin TerraUSD (UST) and its related token Luna (LUNA).

“I am very disappointed with how this UST/LUNA incident was handled (or not handled) by the Terra team. We requested their team to restore the network, burn the extra minted LUNA, and recover the UST peg. So far, we have not gotten any positive response, or much response at all,” he said on Twitter.

Zhao also explained why Binance decided to freeze trading of both tokens.

“Some of our users, unaware of the large amounts of newly minted LUNA outside the exchange, started to buy LUNA again, without understanding that as soon as deposits are allowed, the price will likely crash further. Due to these significant risks, we suspended trading,” he said.

The tokens collapsed when UST lost its peg to the US dollar, putting incredible pressure on Luna to keep its price up. Due to the way the two tokens were designed to interact, this led to a huge supply increase for Luna and a resultant price crash. Luna’s supply increased from 340 million to 6.5 trillion in just a few days. At the same time, its price crashed from $60 to a fraction of a cent.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto lending business Celsius had at least half a billion dollars of funds parked in Anchor Protocol but appears to have pulled all of it out over a frantic 24 hour period earlier this week. 

Wallets controlled by Celsius sent at least 261,000 ETH ($535 million at current prices) to Anchor Protocol over the past five months, according to analysis conducted by The Block Research and Hoptrail, a blockchain data firm. The same analysis and comments from a person close to the situation suggest, however, that Celsius was able to withdraw the entirety of those funds. 

Celsius allows retail investors to earn interest on their crypto holdings, advertising interest rates of up to 17%. According to its website, the company serves 1.7 million customers. 

Terra’s Anchor Protocol has offered yields of up to 20% to depositors of TerraUSD (UST), the Terra-native algorithmic stablecoin. The Terra ecosystem was thrown into chaos earlier this week when UST de-pegged sharply from the price of one US dollar, putting Anchor Protocol under major pressure. The Terra blockchain was twice halted on May 12. 

Celsius’s deposits began on December 19, with 146,000 ETH deposited through March 17. The pace then accelerated, with a further 115,000 ETH deposited between April 6 and May 3. 

But the company appears to have escaped before UST’s collapse. Early on May 11, with Terra’s tokens in freefall, the lender withdrew some 225,000 ETH (or $463 million) from Anchor Protocol, according to The Block Research’s analysis. 

While The Block Research was unable to determine whether the remaining funds were withdrawn, a person with direct knowledge of the situation said that there are no Celsius funds left outstanding with Anchor Protocol, implying that the remaining 36,000 ETH (or $74 million) was also withdrawn. 

Celsius itself put out the following tweet on May 11. 

As part of our responsibility to serve our community, @CelsiusNetwork implemented and abides by robust risk management frameworks to ensure the safety and security of assets on our platform.

All user funds are safe. We continue to be open for business as usual.

— Celsius (@CelsiusNetwork) May 11, 2022

“Celsius was relatively OK because they used Bonded ETH (bETH) as collateral to borrow UST, which was then lent to Anchor for yield. In the current situation, this turned out to be safer than buying UST from the market,” said The Block Research’s Igor Igamberdiev. He stressed that his analysis represented a lower estimate of Celsius’s deposits to and withdrawals from Anchor Protocol.

The process of depositing funds to Anchor Protocol was convoluted. Igamberdiev explained that it involved first staking ETH using Lido to receive Staked ETH (stETH); then sending stETH to Anchor vault on Ethereum in order to mint and send bETH (a token representation of stETH) to Wormhole, a crypto bridge; minting bETH on Terra using Wormhole; before finally depositing bETH to Anchor Protocol.

Igamberdiev added that the funds withdrawn from Anchor Protocol by Celsius in the form of Lido stETH were sent to Aave v2, another lending protocol. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.