Avalanche Foundation to Repurchase 2M AVAX From Terra’s Luna Foundation Guard
The Avalanche Foundation has announced a deal to repurchase 1.97 million AVAX tokens from Terraform Labs' bankrupt estate.
Luna Foundation Guard (LFG) purchased $100 million worth of Avalanche's AVAX tokens to strengthen its reserves back in April 2022, one month before the collapse of the Terra ecosystem. The agreement is pending court approval.
"This action ensures that LFG would not violate the original agreement’s restrictions on the tokens’ use and shields the tokens from the complexity of a bankruptcy trustee liquidation, while returning 1.97M AVAX to the Foundation’s holdings," Avalanche explained.
"This further enhances the Foundation’s ability to support the ongoing growth and development of the Avalanche ecosystem."
The current value of the tokens is approximately $56 million, down 44% from the initial $100 million value.
Last month, Do Kwon's Terraform Labs received court approval to wind down its operations in a bankruptcy agreement.
On 19 September, a US Bankruptcy Judge Brendan Shannon approved Terraform’s bankruptcy plan, describing it as a “welcome alternative” to further litigation.
The Singapore-incorporated company had faced a lawsuit for defrauding cryptocurrency investors who lost $40 billion when Luna crashed in 2022.
Terraform Labs filed for bankruptcy in January and reached a settlement agreement with the U.S. Securities and Exchange Commission (SEC) for a staggering $4.5 billion.
Collapse of UST and Luna
The Terra ecosystem, spearheaded by Terraform Labs, experienced a spectacular collapse in May 2022. UST, an algorithmic stablecoin designed to maintain a 1:1 peg with the US dollar, lost its peg and plummeted in value.
This triggered a domino effect, causing the price of Luna, the ecosystem's utility token, to spiral downwards towards near worthlessness. The crash resulted in billions of dollars in losses for investors and the start of a long crypto winter for the rest of the industry.
News of the repurchase sent AVAX up more than 15% from around $25 to almost $29.