QUICK TAKE:
LFG shares a technical audit report conducted by JS Held, a third-party auditing firm
All Luna Foundation Guard funds were spent to defend UST’s peg parity with the Dollar
The report dispels the allegation of embezzlement or misuse of funds
On November 16, Luna Foundation Guard (LFG), the entity supporting the Terra ecosystem, today released the much-awaited technical audit report. The report was conducted by JS Held, an experienced third-party auditing firm. Notably, the report provides “full transparency” into the trading, blockchain records, and efforts of LFG and TFL to defend the price of TerraUSD ($UST) between May 8th & May 12th, 2022.
Terra’s algorithmic stablecoin UST lost its peg to the dollar in May this year. Consecutively, both UST and Terra’s governance token Luna ended up falling to near-zero levels. The contagion spread by this collapse is still being felt across the crypto ecosystem. The black swan event toppled several crypto firms with UST exposure while wiping $60 billion from the market. The community has since questioned LFG about its role in preventing UST’s collapse, but a full audit has only become available now.
As per the report, LFG spent $2.8 billion to defend UST’s peg in May. This included 80,081 BTC and 49.8 million in stablecoins. Moreover, the report also claimed that Terraform Labs, the Terra blockchain developer, spent $613 million of its own capital defending the peg.
6/ The audit concluded that:
➡️ LFG spent $2.8B (80,081 $BTC and 49.8M in stablecoins) to defend $UST’s peg, consistent with LFG’s tweets on May 16th, 2022
➡️ Additionally, TFL went above and beyond and spent $613M of its own capital to defend the $UST peg
— LFG | Luna Foundation Guard (@LFG_org) November 16, 2022
LFG Denies All Allegations
Moreover, as per the tweets by Luna Foundation Guard, all LFG funds were spent to defend UST’s peg parity with the Dollar. Notably, LFG’s remaining balances are the only funds left with the entity. Further, the tweets said that this will naturally dispel all the allegations. LFG claims that the community has “put the wrong thing” about them based on the following information:
Embezzlement or misuse of funds → all funds were used for peg defense
LFG funds used to benefit insiders → all peg defense occurred in open markets, with no special preference for any party
LFG funds frozen by law enforcement → all LFG funds are kept in self-hosted wallets, have not moved since the May 16th tweet, and have not been frozen
Furthermore, TFL fully funded Luna Foundation Guard’s asset fund in order to create a secure escrow fund for Terra’s stablecoins, the report said. For the reasons stated above, the TFL concluded:
12/ While those reserves were unfortunately insufficient to defend against extreme market volatility and eventually led to $UST depegging, LFG lived up to its mandate fully to do everything within its resources to prevent that outcome.
— LFG | Luna Foundation Guard (@LFG_org) November 16, 2022
Do Kwon, the founder of Terraform Labs, also brought up the recent FTX ecosystem collapse to defend his own platforms. He said,
While there have been multiple recent failures in crypto, it is important to distinguish between Terra’s case, where a transparent, open-source decentralized stablecoin failed to maintain peg parity and its creators spent proprietary capital to try to defend it, and failure of centralized custodial platforms where its operators misused other people’s money (customer funds) for financial gain.
He added,
We hope that this report shows our organizations’ commitment to transparency and the wider crypto ecosystem, and we are more committed than ever to learn from our failure and continue to build systems that are more transparent, decentralized, and resilient.