Auditors confirm LFG used a $2.8 billion fund to rescue UST

A technical audit of Luna Foundation Guard (LFG) actions conducted by the firm JS Held showed that the organisation spent its reserve fund of about $2.8 billion exclusively to defend the peg of the algorithmic stablecoin TerraUSD (UST).

1/ Today, LFG releases the technical audit report conducted by JS Held, an experienced third-party auditing firm, providing full transparency into the trading, blockchain records, and efforts of LFG and TFL to defend the price of TerraUSD ($UST) between May 8th & May 12th, 2022.

— LFG | Luna Foundation Guard (@LFG_org) November 16, 2022

According to the statement, the audit was intended to address a number of accusations from the community regarding LFG and Terraform Labs (TFL). The allegations included possible misappropriation of funds, their misallocation, and freezing of assets.

JS Held’s experts had access to primary information; their remuneration did not depend on a positive outcome of the audit, emphasised LFG.

The audit concluded the following:

• LFG spent 80,081 BTC and $49.8 million in stablecoins (~$2.8 billion) to defend the UST peg, in line with statements from May 16;
• in turn, TFL allocated $613 million of its own capital to rescue the stablecoin.

Despite the complete depletion of the reserve fund, the funds were insufficient to stabilise UST, the statement says. LFG noted that they had “fully met their obligations”.

The founder of TFL Do Kwon urged not to compare the Terra ecosystem collapse with recent incidents in the industry such as Celsius or FTX:

“It is important to distinguish the Terra case, where a transparent decentralised open-source stablecoin could not hold the dollar peg, and its creators spent their own capital to rescue it, from the collapse of a centralised custodial platform, whose operators misused client funds for financial gain.”

Back in March, Kwon said that to sustain the UST peg a reserve fund of $10 billion was necessary.

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