Where Did Terra's $3.5 Billion Bitcoin Reserve Go After UST and LUNA Collapse?

Over the weekend, as Terra ’s UST stablecoin showed its first signs of instability, with its price dropping to $0.985, the Luna Foundation Guard (LFG), the nonprofit organization tasked with overseeing the health of the Terra ecosystem, voted to deploy $1.5 billion in Bitcoin and UST from its reserves in order to re-peg UST to the U.S. dollar.

Since January, LFG has reserved more than $3.5 billion in Bitcoin, Avalanche , LUNA, and UST to deploy when UST falls below $1. According to LFG, the borrowed funds will be used to purchase large amounts of UST, thereby creating buying pressure to push the stablecoin back to its expected price.

On Monday, however, UST began to plummet. By Tuesday, LFG’s reserves were nearly wiped out as UST’s price fell to unprecedented lows. However, the stablecoin was not saved: by the end of the week, UST plummeted to $0.13, destroying Terra’s native token LUNA in the process and wiping out $40 billion in value.

The failure of Terra’s support strategy begs the question: What happened to the $3.5 billion? Where did it go?

The cryptocurrency exchange’s CEO Changpeng Zhao first raised the issue on Twitter, asking where Terra’s Bitcoin reserves had gone, after he expressed his views on the troubled blockchain.

Many began to publicly question the transparency of Terra and Terra co-founder Do Kwon’s actions. Do Kwon stated via Twitter that documents regarding the use of reserves during the decoupling event would be released soon.

Tom Robinson, co-founder and chief scientist at blockchain analytics firm Elliptic , said where Bitcoin is flowing and how it is used will be crucial for investors seeking to recoup losses from their UST exposure.

According to data from blockchain analytics platform Elliptic, on Monday, a Bitcoin address associated with LFG sent about $750 million worth of Bitcoin to a new address a few hours after LFG announced the $1.5 billion loan. That evening, another $930 million worth of Bitcoin was sent from multiple wallets associated with LFG to the same new address. Then, a total of 52,189 Bitcoins, worth more than $1.6 billion, were transferred from the new address to an account at the U.S. cryptocurrency exchange Gemini.

LFG was left with 28,205 bitcoins in its reserves, worth about $875 million at the time. On Tuesday morning, the entire amount was transferred to an account at Binance.

Robinson said the purpose of having a large Bitcoin reserve could be to buy UST to push the price back to $1, which could be the reason why the Bitcoin was sent to the exchange, but it could not be determined whether the assets were sold or subsequently transferred to other wallets.

“All we can see is that it went into these exchanges, we can’t really see how it was used,” Robinson said. “It could have been sold, it could have been stored on an exchange, it could have been withdrawn again.”