Despite the TerraUSD crash, the platform’s DAO (the LFG) still needs to answer a few questions on some discrepancies regarding Terra’s BTC reserves. Before the UST lost its UST peg earlier in the week and created commotion across the market, the LFG held 70,737 worth of BTC (valued at nearly $2.1B) as reserves for its stablecoin (the UST).
LFG’s BTC Reserve Couldn’t Prevent UST From Losing Its USD Peg
The BTC reserve was meant to ensure that the UST remains on a 1:1 ratio with the fiat USD. But the stablecoin still lost its peg and nearly all of its value. It currently trades at $0.164 using the current Coinmarketcap data. Hence, the BTC reserve couldn’t prevent the UST from losing its USD peg.
When the UST lost its peg briefly, the LFG claimed that loaning out $750M to OTC trading firms worth of its BTC reserves would help the UST reclaim its USD peg. Thus, there must still be more than $1.2B worth of BTC reserves with the LFG. However, the LFG hasn’t given an account of the over $1.2B worth of BTC left in its reserves.
The explanation becomes necessary as the last update by the organization suggests that the LFG’s BTC wallet address has no BTC balance.
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Last clip withdrawn by the LFG was ~37K BTC.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
The LFG Needs To Make Certain Clarifications
Based on the information provided by the LFG, its BTC balance is zero. Hence, it is ideal that the organization explain what happened to the ‘un-loaned’ BTC reserves. No one can trace the movement of the remaining funds because the BTC blockchain doesn’t track private wallet transactions.
Popular industry analyst, Mika Honkasalo, opined that “it is a shame that the LFG hasn’t deemed it fit to explain how the funds were spent. The LFG only stated that it loaned $750M worth of the reserve to market makers and transferred the remaining amount to a treasury address.” “however, it needs to clarify what it did with the remaining funds, and that shouldn’t be a difficult thing to do or is it?” Honkasalo asked rhetorically.
A tweet by the LFG some days ago showed that the organization holds more than 80k BTC in its reserves. However, research by the IntoTheBlock on-chain analytics team showed that the wallet addresses of 9,658 BTC aren’t available to the public.
Thus, it shouldn’t be surprising that the LFG doesn’t account for these BTCs without publicly-known wallet addresses. Also, the LFG needs to expound on the details of the $750M loan to market makers.
It needs to provide details about the identity of the borrowers, the interest rate for these loans, and other necessary information about the loan. Honkasalo claims that the LFG could have sold all the BTC reserves since that was initially the primary purpose of holding the BTC.
