The Avalanche Foundation is preparing to repurchase 1.97 million Avalanche (AVAX) tokens from the Luna Foundation Guard (LFG) for a substantial sum of $45.5 million. At present, these tokens are valued at approximately $57.4 million in the market. This transaction takes on added significance as it occurred just a month before the tumultuous collapse of the Terra blockchain ecosystem in April 2022. An agreement for repurchase and settlement has been filed with a Delaware Bankruptcy Court on October 9, which is currently awaiting court approval.
This was confirmed by the Avalanche Foundation via a post made on X on October 11. The foundation has underscored that this strategic action is vital to prevent LFG from infringing the restrictions laid out in the original agreement concerning the utilization of these tokens. Moreover, this move serves to shield the tokens from the complexities involved in bankruptcy trustee liquidations, while effectively returning the 1.97 million AVAX tokens back into the Foundation's holdings. Currently, the value of the repurchased 1.97 million Avalanche tokens represents a staggering 42% reduction from the $100 million LFG invested in them back in April 2022.
The settlement reached through this deal will not only lessen litigation expenses but also preserve a greater number of assets available for distribution to creditors, as indicated by Terraform Labs in their filing. They also affirmed that this settlement will enable the organization to reclaim an amount close to the current market value of the 1.97 million AVAX tokens.
The settlement is predicated on the volume-weighted average price of AVAX tokens over a seven-day period in early August 2024. The Luna Foundation Guard is a nonprofit entity charged with the crucial responsibility of building and maintaining reserves for Terra’s algorithmic stablecoin, TerraClassicUSD (USTC), which was the instrument used to acquire the AVAX tokens during their initial purchase.
Unfortunately, the situation took a sharp downturn less than a month later when USTC lost its peg to the United States dollar, plummeting as low as $0.006. Moreover, Terraform Labs, the company behind the layer 1 blockchain Terra, engaged in a swap of $100 million worth of Terra Luna Classic (LUNC) for AVAX, aiming to strategically align the incentives within the ecosystem in that same month.
This chain of events was catastrophic, resulting in nearly $60 billion being wiped off LUNC and USTC's market caps, according to data from CoinGecko. This repurchase agreement arrives on the heels of a Delaware bankruptcy judge giving the green light last month for Terraform Labs' decision to cease operations, a significant move following their monumental $4.5 billion settlement with the Securities and Exchange Commission back in June.
It has been reported that Terraform suggested it could potentially allocate between $185 million and $442 million as part of its wind-down strategy, although estimating its total losses has proven to be an insurmountable challenge..