Luna After The Storm: LFG Shuffles Crypto, But Is Security Enough?

The Luna Foundation Guard (LFG), a non-profit organization tied to Terraform Labs (TFL), has moved its crypto holdings to a direct custody solution. This move follows a recent settlement with the U.S. Securities and Exchange Commission (SEC), where TFL and its founder, Do Kwon, agreed to pay $4.5 billion in penalties over civil fraud charges.

The news has caused jitters in the crypto market, with concerns swirling about the safety and future of LFG’s funds. LFG claims the direct custody arrangement will enhance security, but it coincides with TFL undergoing bankruptcy proceedings and selling off major projects.

Shifting Sands

LFG’s announcement on June 25th detailed the transfer of its crypto holdings, including Bitcoin (BTC), Avalanche (AVAX), and Binance Coin (BNB), to a new custody solution. This follows reports of LFG moving nearly $95 million in crypto assets to a new address. While LFG asserts this improves security, it comes amidst a period of immense financial strain for TFL.

Transparency Efforts

To maintain some semblance of trust, LFG has established a public dashboard to track the funds in its wallets. This includes holdings of AVAX, BNB, BTC, and TerraUSD (UST), now known as USTC after its de-pegging from the US dollar. The current total reserve value sits at $124 million, with Bitcoin holdings accounting for roughly $19 million.

Burning Bridges

Further complicating the picture, TFL CEO Chris Amani confirmed the burning of LUNA tokens held in wallets linked to both TFL and LFG. This move aims to address concerns over token supply and potentially stabilize prices. Additionally, the Terra Luna Classic community plans to burn LUNC and USTC tokens in their wallets.

Selling Spree

Adding to the market anxiety, TFL announced plans to sell off major crypto projects like Pulsar Finance, Station Wallet, and Enterprise Protocol. CEO Amani assured continued operation of existing products during the wind-down process. However, the selloff and the SEC settlement have caused a significant drop in the prices of cryptocurrencies associated with TFL and LFG. AVAX has plunged 34% in the last month, while LUNA and USTC have also seen declines exceeding 30% and 20% respectively.

Uncertain Future

The Luna Foundation Guard’s move to direct custody and the broader financial woes of Terraform Labs paint a picture of uncertainty. While LFG claims a focus on security, the timing and circumstances raise questions about the future of these organizations and their impact on the cryptocurrency market. Investors are left to monitor the situation closely as the dust settles from the SEC settlement and the asset sales progress.