Analysis

LFG Audit Claims Do Kwon Didn’t Steal Terra Funds—however Can It Be Trusted?

Key Takeaways

  • A brand new third-party audit of the Luna Basis Guard has been launched.
  • The report claims that LFG used its $2.8 billion of funds in an try and shore up UST’s peg in Could.
  • Whereas the audit seems respected, Korean prosecutors preserve they’ve frozen funds embezzled by Terra figurehead Do Kwon.

The audit asserts that the Luna Basis Guard spent roughly $2.8 billion to defend UST’s peg. 

LFG Releases Audit

The Luna Basis Guard is attempting to clear its title. 

The Terra-linked group, established in January to guard the greenback peg of the now-defunct TerraUSD (UST) stablecoin, has launched a third-party audit performed by accounting agency JS Held. The audit claims that LFG spent all of its money and Bitcoin reserves in its try and defend UST’s peg between Could 8 and Could 16, 2022, contrasting widespread hypothesis that Terraform Labs co-founder Do Kwon had embezzled a portion of LFG’s funds throughout UST’s collapse. 

In accordance with the report, LFG spent roughly $2.8 billion, comprising 80,081 Bitcoin and $49.8 million in stablecoins, to defend UST’s peg, as LFG claimed on Twitter on Could 16. Moreover, the audit states that Terraform Labs spent an additional $613 million of its personal capital to defend the algorithmic stablecoin’s peg. 

UST was an algorithmic stablecoin developed and issued by Terraform Labs. It rose to recognition because of the outsized 20% yield holders may earn by depositing it into Terraform Labs’ Anchor Protocol. Nevertheless, in contrast to reserve-backed stablecoins equivalent to USDC or BUSD, UST was pegged to the greenback algorithmically. When market forces knocked UST off its peg on Could 8, there was not sufficient collateral in reserve to shore up its worth, inflicting it to enter a demise spiral, erasing over $40 billion in worth from the crypto market. Kwon has been extensively criticized for the unsustainability of UST’s peg mechanism and his irresponsible promotion of the stablecoin as a “risk-free” asset. 

Within the announcement of its third-party audit, LFG asserts the report reveals all its funds had been spent to defend UST’s greenback peg as declared and that its remaining balances are the one funds remaining. It additionally argues that the audit proves no LFG funds had been embezzled, misused, or frozen by regulation enforcement.

Is Anybody Satisfied?

In September, South Korean prosecutors issued a request to freeze property deposited to centralized exchanges that had been believed to be linked to the Luna Basis Guard. The Seoul Southern District Prosecutors’ Workplace has claimed that LFG moved funds to KuCoin and OKX on September 15, a day after a Seoul court docket issued a warrant for Kwon’s arrest. Crypto analysis agency CryptoQuant and OXT Analysis member Ergo BTC have additionally claimed that the funds got here from LFG. To this point, KuCoin has reportedly agreed to the prosecutor’s request and frozen the supposed LFG property, however OKX has stayed silent. 

If these claims are to be believed, it will imply an unidentified entity related not directly with Do Kwon and Terra has its palms on over $140 million in Bitcoin. Whereas prosecutors constructing a case in opposition to Kwon appear to consider these funds are linked, not everyone seems to be satisfied as there isn’t any stable proof that Kwon, Terraform Labs, or LFG have any management over these cash.

In an October 5 tweet, Kwon denied the allegations that he had embezzled funds. “I don’t even use Kucoin and OkEx, haven’t any time to commerce, no funds have been frozen,” he stated. “I don’t know whose funds they’ve frozen, however good for them, hope they use it for good.”

Nevertheless, if Kwon is telling the reality and the $140 million price of Bitcoin doesn’t belong to him, KuCoin would seemingly obtain complaints from a big whale for unjustly freezing their funds. As nobody has come ahead, it appears all of the extra seemingly that Kwon may very well be masking up his or LFG’s involvement. 

Nonetheless, JS Held, the LFG’s third-party auditor, seems to be a good firm. It’s unlikely that it will put its status on the road to cowl up criminality or embezzlement of funds. Whereas it’s wanting more and more seemingly that the $140 million in query isn’t linked to Kwon or Terraform Labs, the Terra neighborhood could also be more durable to persuade. The complete fact of the scenario could not come out till Kwon faces trial—if he ever does. Kwon has reportedly fled Singapore for Europe however maintains that he’s not on the run. Both method, even when the audit is official, it appears unlikely that Kwon will achieve successful again the crypto neighborhood’s belief anytime quickly. 

Disclosure: On the time of penning this piece, the creator owned ETH, BTC, and several other different crypto property. 

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