Luna Foundation Guard disclosed bitcoin reserve collapse after UST defense

Luna Foundation Guard disclosed on May 16, 2022 that its bitcoin reserve had fallen from 80,394 BTC on May 7 to 313 BTC after an unsuccessful effort to defend TerraUSD’s intended one-dollar price. The reduction of 80,081 BTC, calculated from the foundation’s reported balances, meant almost the entire bitcoin backstop assembled for the Terra ecosystem was no longer in its reserve.

The disclosure mattered beyond the losses associated with UST and its linked LUNA token. A multibillion-dollar bitcoin reserve had been presented as an additional defense for an algorithmic stablecoin. Its depletion showed that a large external reserve could be consumed rapidly without restoring the peg, while the use of trading firms and centralized exchanges complicated real-time public verification.

LFG published its account of the reserve deployment

LFG said it began converting reserve assets into UST on May 8, when UST started trading substantially below one dollar. Its May 16 account said the foundation directly exchanged 26,281,671 USDT and 23,555,590 USDC for an aggregate 50,200,071 UST.

The foundation also reported transferring 52,189 BTC to a counterparty for trades that produced 1,515,689,462 UST, after accounting for excess bitcoin returned. It said that on May 10, Terraform Labs, acting for LFG under a services agreement, used another 33,206 BTC in what the foundation characterized as a final effort to defend the peg.

Those quantities were contemporaneous claims from LFG, not a complete independently observable trade ledger on May 16. A transfer into a counterparty or exchange account does not by itself prove the assets were sold, identify every execution price or establish the market impact of the trades.

LFG listed its remaining reserve as 313 BTC, 39,914 BNB, 1,973,554 AVAX, 1,847,079,725 UST and 222,713,007 LUNA. Of the reported LUNA balance, 221,021,746 was described as staked with validators. The foundation said it intended to use remaining assets to compensate UST users, prioritizing smaller holders, but acknowledged that the distribution method was still under discussion. No payment timetable or enforceable recovery value was established on May 16.

Public-chain evidence ended at exchange accounts

Elliptic’s contemporaneous blockchain analysis traced 52,189 BTC from LFG-associated addresses to an account at Gemini. It separately traced 28,205 BTC to an account at Binance at approximately 01:00 UTC on May 10. Elliptic cautioned that public blockchain data could not reveal whether assets were sold after reaching the exchanges, remained there or moved through internal records unavailable to outside observers.

That limitation was central to interpreting the May 16 disclosure. The visible bitcoin transfers supported the conclusion that the known reserve wallets had been emptied, but LFG’s account was still required to explain the off-chain trading activity.

UST remained far below its target

Reuters recorded UST at approximately $0.05 at 16:47 GMT on May 16 using CoinGecko pricing. That was a point-in-time observation from an aggregated, fragmented cryptocurrency market, not a consolidated daily close. Reuters also described bitcoin as trading just below $30,000 during the May 16 session.

The figures establish that the reserve disclosure arrived while UST remained severely detached from its intended price. They do not establish that the May 16 announcement caused bitcoin’s movement or isolate LFG’s trades from inflation, interest-rate concerns and broader risk-asset selling.

Later verification and limitations

A JS Held forensic report dated November 9, 2022 later confirmed the reported May 7 and May 16 reserve balances and concluded that approximately 80,000 BTC had been used in the peg-defense operation. It also found that two intermediate UST quantities in LFG’s thread were estimates rather than completed-transaction totals. Jump Trading did not provide its trade records, and API limitations excluded data from OKX, Bittrex and Huobi. The later report therefore strengthened the balance accounting without making every execution independently transparent.