Avalanche Foundation Ends Association with Terra Blockchain After 1.97M AVAX Repurchase
The Avalanche Foundation has officially completed its repurchase of 1.97 million AVAX tokens from the Luna Foundation Guard (LFG), marking the end of its connection with the collapsed Terra blockchain. Initially, these AVAX tokens were provided to support the Terra ecosystem but have now been acquired by Avalanche to prevent potential market disruption.
Key Points
- Avalanche Foundation repurchased 1.97 million AVAX tokens from LFG, valued at around $52 million.
- This acquisition ends the foundation’s association with Terra and its stablecoin, UST.
- The tokens will not enter the market, safeguarding the Avalanche ecosystem.
Background: The Avalanche-Terra Partnership
In April 2022, the Avalanche Foundation entered a partnership with Terra, selling 1.97 million AVAX tokens to LFG. This move was intended to support Terra’s algorithmic stablecoin, TerraUSD (UST), by building a reserve that could stabilize its dollar peg. This reserve mechanism involved both UST and Terra’s native token, LUNA, as well as other crypto assets like Bitcoin.
Initially valued at up to $200 million, the AVAX tokens were part of LFG’s broader strategy, which included acquiring Bitcoin to back UST stability. However, in May 2022, Terra’s ecosystem faced a severe collapse, leading LFG to liquidate assets worth $3 billion in a bid to restore UST’s stability. The collapse of Terra significantly impacted investor confidence and led to regulatory scrutiny.
Avalanche’s Efforts to Repurchase AVAX Tokens
Following the collapse, the Avalanche Foundation pursued the repurchase of its AVAX tokens to avoid market disruptions that could arise from the availability of such a large volume of tokens. However, the process encountered delays due to procedural issues and required court approval to finalize the buyback.
Impact of the Repurchase on Avalanche Ecosystem
With the buyback completed, the 1.97 million AVAX tokens, valued at approximately $52 million, will remain off the market. This strategic move is designed to protect the Avalanche ecosystem from potential volatility and negative market effects that could arise if the tokens were released into open trading.
Legal and Regulatory Developments
In June 2024, Do Kwon, the founder of Terraform Labs, and the organization reached a settlement with the U.S. Securities and Exchange Commission (SEC), agreeing to pay $4.47 billion in civil charges. The settlement was part of a series of regulatory actions following the Terra collapse, as Terraform Labs was held liable for defrauding investors.
This development reinforces the Avalanche Foundation’s decision to sever ties with the Terra blockchain, closing a challenging chapter in its history while securing its token ecosystem against potential future risks.
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