Business Maverick: Cost of Failed Terra Stablecoin Rescue Reaches $2.9 Billion

The Luna Foundation Guard, the entity set up by Terraform Labs to maintain TerraUSD’s peg to the dollar, used up roughly $2.9 billion in crypto reserves since May 7 trying to stabilize the token, data compiled by Bloomberg based onMonday on LFG’s unverified Twitter account show. The reserves stood at almost $3.2 billion before, according to the data.

Unlike collateralized stablecoins such as Tether, UST primarily used algorithms and trader incentives involving its sister coin Luna to maintain a 1-to-1 peg with the dollar. As the token grew in prominence, its backers started to build a massive war chest of Bitcoin and other cryptocurrencies as an additional backstop to UST.in its tweet. Based on the closing price that day, the Bitcoin hoard was then worth $2.88 billion. LFG said it now holds 313 Bitcoin, worth about $9.

The remaining reserves will be used to compensate UST holders, with the smallest ones first in line, LFG tweeted. That’s a tiny fraction of the more than $16 billion in market value UST has lost since it crumbled from its dollar peg. LFG didn’t immediately reply to an email seeking comment.In total, investors may have lost as much as $42 billion in total in the crash of UST and Luna, according to David Carlisle, vice president of policy and regulatory issues at crypto researcher Elliptic.

“The Terra case will light a major fire under an already intensive regulatory debate about the consumer protection, market conduct, and financial stability risks of crypto,” Carlisle said in an email.

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