Avalanche Foundation Ends Relationship with Terra Blockchain

The Avalanche Foundation is concluding its relationship with the collapsed blockchain Terra after more than two years. An announcement made on Thursday stated that the foundation has completed the repurchase of AVAX tokens from the Luna Foundation Guard (LFG), an organization created by Terraform Labs’ founder Do Kwon to prevent the kind of death spiral that ultimately harmed the failed algorithmic stablecoin TerraUSD (UST).

In 2022, Kwon established LFG—an acronym for “Let's Freaking Go!”—as an intermediary set to buy more than $10 billion worth of Bitcoin and other cryptocurrency assets, including AVAX, to create a strategic reserve for his then-popular, though unstable, stablecoin.

Part of this plan involved two agreements that allocated $100 million worth of AVAX tokens to LFG’s balance sheet and $200 million worth of UST and its related token LUNA to the Avalanche Foundation’s. UST was designed to maintain a peg to the U.S. dollar via a mechanism that either burned or purchased LUNA, which maintained a fluctuating price.

Although the partnership aimed to align incentives between the two blockchain ecosystems, Avalanche, like many others associated with Terra, faced significant losses. Following the collapse of Kwon’s UST, the Avalanche Foundation worked on buying back its tokens.

Recently, the non-profit received the bankruptcy court’s permission to make these repurchases, which allowed it to buy back 1.97 million AVAX tokens for approximately $52 million at current prices, as stated in a report. The AVAX token was trading around $26.5 on Wednesday according to The Block’s price page.

CEO and Executive Director of the Avalanche Foundation, Aytunç Yildizli, expressed satisfaction in finalizing the repurchase, emphasizing the foundation’s commitment to developing the Avalanche ecosystem. He highlighted that these funds will support grants, incubators, and events to promote community and technological development.

An Avalanche spokesperson reiterated this view, telling The Block that the buyback of tokens represents an important milestone in their ongoing efforts to foster the growth and sustainability of the Avalanche ecosystem.

In June 2024, Kwon and Terraform Labs made a $4.47 billion civil settlement with the U.S. Securities and Exchange Commission after being found liable for defrauding investors. The downfall of TerraUSD is frequently noted as the catalyst for the market contagion event in 2022, leading to the collapse of firms like hedge fund Three Arrows Capital, lending app Celsius, and the FTX crypto exchange.

As of March 2023, Kwon has been detained in Montenegro, with extradition requests from both the United States and South Korea pending.