Collapse of the Terra Ecosystem

Collapse of the Terra Ecosystem

As many of you know, TerraUSD (UST), an algorithmic “stablecoin” created by Terraform Labs, crashed this week. Designed to maintain a peg to the US dollar, the value of 1 UST fell from $1 to a low of only $0.0004699, resulting in billions of dollars in losses to UST holders.

After the stablecoin UST from Terra collapsed, the AMLBot team was caught in the loop of series of different questions, but the most intriguing was what happened to the 3.5 billion dollars stored in the BTC reserves?- The reserves were meant to help prevent such an outcome. We held an investigation, using AMLBot and Crystal Blockchain Analytics tools to track bitcoin reserves as they move after the UST drop.

What about the reserves?

The Luna Foundation Guard (LFG), a non-profit organization created earlier to support the growth of the Terra ecosystem, has announced that it will buy up to $10 billion in bitcoin and other cryptocurrencies. These coins will act as a reserve backing the UST stablecoin. LFG purchased 80,394 BTC worth $3.5 billion between January and May of this year.

As the value of UST began to fall on May 9, LFG announced that it would begin to dump its bitcoin holdings and buy UST to try and maintain UST’s peg to the US dollar. Over the next day, bitcoin addresses containing LFG reserves were emptied. As the value of the UST stablecoin continues to fall, questions are being raised about the fate of the LFG bitcoin reserve and whether it was used to support the value of the stablecoin.

So what happened?

On May 9, LFG announced that it would “loan $750 million worth of BTC to OTC trading firms to help protect the UST peg.” Terra creator Do Kwon later clarified that bitcoin would be “used for trading.”

Around the same time, 22,189 BTC (worth about $750 million at the time of writing this article) were sent from the bitcoin address associated with LFG to the new address. Later that evening, another 30,000 BTC (worth about $930 million at the time) was sent from other LFG wallets to the same address.

Within a couple of hours later, all 52,189 BTC were subsequently transferred to one account at Gemini, the US-based cryptocurrency exchange, through multiple bitcoin transactions. Further tracking of the assets or determining whether they were sold to support the price of the UST is not possible. As a result, 28,205 BTC remained in Terra’s reserves.

On May 10, at 1:00 UTC, the rest was moved in one transaction to an account on the Binance cryptocurrency exchange. As mentioned earlier, it is not possible to determine if these assets were sold or subsequently moved to other wallets. Now the balance of wallets is 0 BTC.

Winding up

Unfortunately, we are unable to help recover the losses but in this article we wanted to give users an understanding of what is happening and give them some knowledge about the situation with Terra that not everyone may know about

Analytics, investigations and security in the crypto industry is developing every day. Various services and products help to take care of their security, but despite this, collapses, falls, scams and frauds continue to take place in everyday life. AMLBot is always ready to help in tracking funds, connections and identifying the origin of any funds