In 2022, Avalanche and Terra signed an agreement for AVAX to be used as collateral for the UST stablecoin, which ended up collapsing
The Avalanche Foundation has bought back from the bankrupt estate of the Terra blockchain a total of 1.97 million AVAX tokens, which are currently valued at US$52 million (R$295 million). The deal marks the end of the relationship between the two projects, which had strong interaction until the collapse of the company created by Do Kwon. The information is from the portal The Block.⭐
In 2022, Do Kwon created a foundation called LFG, which aimed to create a $10 billion fund to serve as a store of value for Terra's algorithmic stablecoin, UST, which was pegged to the dollar. In theory, as UST lost parity, the reserve would be used to buy the cryptocurrency LUNA and restore the price of UST on a balance sheet that had proven to be flawed.
To cash LFG, Do Kwon made an agreement with the Avalanche Foundation to place the equivalent of US$100 million in AVAX token in the vault. In return, the Foundation received the equivalent of US$200 million in UST and LUNA tokens.
With the collapse of the Terra ecosystem, the Avalanche Foundation saw its share of the business go to virtually zero. Since then, it has begun a series of attempts to buy back the amount of AVAX tokens sent to LFG.
Now, a U.S. court has allowed Terra’s bankrupt estate to sell the tokens to Avalanche. “We are pleased to complete this buyback, which underscores our continued commitment to the development of the Avalanche ecosystem,” Aytunç Yildizli, CEO and executive director of the Avalanche Foundation, said in a statement.
The executive highlighted that the funds will be used to support subsidies, incubators and events to boost community and technological development.
Bankruptcy of the Terra project
In June, the Securities and Exchange Commission (SEC) said Terraform Labs and its former CEO Do Kwon had agreed to pay about $4.5 billion as part of a massive settlement, according to court documents.
The company and individual behind the $40 billion collapse of UST and LUNA in 2022 were found liable on civil fraud charges in May. A Manhattan jury found that Kwon and Terraform Labs misled investors about the success and stability of the Terra blockchain before it imploded.
As part of the settlement, Kwon and Terraform Labs would pay $4.5 billion in ill-gotten gains (plus interest), as well as a $420 million civil penalty. They will also be prohibited from “engaging in crypto-asset securities transactions” going forward.
Kwon will personally pay a total of $204 million in cash damages, according to the settlement, which “sends a clear message of deterrence,” the SEC said. The amount represents “substantially all of the damages the agency has sought against Kwon” for his misconduct, the regulator noted.
The funds will be transferred from Kwon to Terraform Labs’ bankruptcy estate under the agreement, which still needs to be approved by Judge Jed Rakoff of the U.S. District Court, Southern District of New York.