Avalanche Foundation Plans to Buy Back 1.97 Million Tokens Sold to Luna Before Ecosystem Collapse
Avalanche, an influential blockchain platform, is taking steps to repurchase 1.97 million of its AVAX tokens that were sold to the Luna Foundation Guard (LFG) in April 2022. This transaction occurred just one month before the Terra blockchain ecosystem experienced a collapse.
The foundation has agreed to buy back the tokens for $45.5 million, despite their current market value being $57.4 million. This repurchase is part of a settlement agreement that was filed in a Delaware Bankruptcy Court on October 9. However, it is still pending court approval.
The main reason for this repurchase is to ensure that LFG does not violate the original agreement’s terms when it comes to the use of the tokens. Additionally, it safeguards the tokens from any complications that may arise during a potential liquidation by a bankruptcy trustee.
By repurchasing the tokens, the Avalanche Foundation adds 1.97 million AVAX tokens back to its own holdings. However, the current value of these tokens is 42% lower than the $100 million that LFG paid for them in April 2022.
Despite the decrease in value, Terraform Labs, the company behind the collapsed Terra blockchain, mentioned in its filing that this settlement will help reduce litigation costs and preserve more assets for creditors.
The settlement price was determined based on the average price of AVAX over a seven-day period in early August 2024.
LFG initially purchased the AVAX tokens to create reserves for TerraClassicUSD (USTC), an algorithmic stablecoin that later lost its peg to the U.S. dollar and dropped to as low as $0.006. In April 2022, Terraform Labs also exchanged $100 million worth of Terra Luna Classic (LUNC) for AVAX in an effort to align ecosystem incentives.
After the Terra ecosystem collapsed, LUNC and USTC lost nearly $60 billion in market capitalization.
In July, a settlement was approved by U.S. District Court Judge Jed Rakoff of the Southern District of New York (SDNY), requiring Terraform Labs and its founder, Do Kwon, to pay a massive $4.5 billion as disgorgement and civil penalties. They are also permanently banned from engaging in any transactions involving “crypto asset securities,” which includes tokens within the Terra ecosystem.
This settlement followed initial proposals from the SEC, suggesting a $5.3 billion penalty. Terraform Labs contested this and advocated for a maximum fine of $1 million. Eventually, on June 6, the legal representatives for Kwon and Terraform Labs agreed to the SEC’s revised settlement offer of $4.5 billion.
It is worth noting that Kwon, who is currently in custody in Montenegro awaiting an extradition decision, did not attend the trial where the settlement was reached.
Currently operating under Chapter 11 bankruptcy protection, Terraform Labs faces the challenge of fulfilling the significant financial obligations imposed by the settlement. According to the trial testimony of the company’s CEO, Chris Amani, Terraform Labs has approximately $150 million in assets.