This decision comes after Terra’s downfall when the value of the tokens dramatically dropped. Let’s break down what happened.
In April 2022, the Avalanche Foundation sold 1.97 million AVAX tokens to the Luna Foundation Guard (LFG) for about $100 million.
Avalanche Foundation Strengthens Its Position for the Future
At that time, it seemed like a smart move. But things quickly went south. Just a month later, the Terra blockchain ecosystem collapsed, causing chaos in the crypto world. Now, the Avalanche Foundation is repurchasing those same tokens for $45.5 million, even though they are currently worth around $57.4 million on the market.
1/ Thrilled to reveal the blossoming collaboration between @avalancheavax and Terra will also be further solidified with a $100 million Treasury Swap between TFL and the Avalanche Foundation of $LUNA <> $AVAX to strategically align ecosystem incentives!https://t.co/z9A86CWZDs
— Terra 🌍 Powered by LUNA 🌕 (@terra_money) April 7, 2022
This buyback is a way for the Avalanche Foundation to protect its interests. By buying back the tokens, they can prevent LFG from misusing them, especially since the tokens were part of a complex bankruptcy case. This move also helps avoid costly legal battles and ensures that the firm can recover an amount close to the current market value of the tokens.
7/ Both the LFG’s inclusion of $100 million of AVAX to the UST Reserve and the $100 million Treasury Swap with TFL exhibit the significant advantages of mutual collaboration between layer one communities in crypto.
— Terra 🌍 Powered by LUNA 🌕 (@terra_money) April 7, 2022
In a recent post on social media, the Avalanche Foundation explained that this action is crucial for maintaining the integrity of the agreement they had with LFG. They believe it’s important to keep the tokens safe and out of the complicated bankruptcy process, which can be messy and confusing.
LFG was a nonprofit organization that aimed to support Terra’s algorithmic stablecoin, TerraClassicUSD (USTC). They had used the money from the sale of AVAX tokens to build reserves for this stablecoin. However, less than a month after the sale, USTC lost its value, dropping to as low as $0.006. This collapse wiped out nearly $60 billion from the market, leaving many investors in a tough spot.
The Avalanche Foundation has negotiated an agreement to repurchase all AVAX tokens previously sold to the Luna Foundation Guard (LFG) in April 2022, which is now awaiting approval from the Bankruptcy Court.
This action ensures that LFG would not violate the original…
— Avalanche Foundation 🔺 (@AvalancheFDN) October 11, 2024
Meanwhile, Terraform Labs, the company behind Terra, has been dealing with the fallout from the collapse. They are currently going through a bankruptcy process and are trying to wind down their operations. A judge recently approved their plan to do so, following a huge settlement with the SEC.
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