In April 2022, the Terra blockchain ecosystem went down, and the Luna Foundation Guard (LFG) paid $100m worth of Avalanche (AVAX) tokens, which the Avalanche Foundation has announced plans to buy back starting today. A repurchase agreement filed with Delaware Bankruptcy Court on Oct. 9 is waiting on court approval.
But the tokens will be acquired by the Avalanche Foundation for $45.5 million from that bankruptcy estate, a far cry from their original sale price. The market value of these tokens is now approximately $57.4 million, 42% less than the original transaction value.
Terraform Labs Faces Legal Challenges After Terra Collaps
According to the Avalanche Foundation, which made a statement on October 11 via social media platform X (formerly Twitter), the repurchase was done based on the rationale behind it. The foundation explained, “With this action, it is ensured that LFG does not violate the terms of the original agreement restricting the use of the token and protects the token from the complexity of a bankruptcy trustee liquidation and returns 1.97 million AVAX to the Foundation’s holdings.”
This agreement has a fairly turbulent background based on the Terra ecosystem. In early May 2022, TerraClassicUSD (USTC) algorithmic stablecoin unexpectedly depegged from the US dollar, hitting as low as $0.006. With the devils growing on the wall, this decline had devastating consequences that rolled away $60 billion in the market capitalization of Terra’s native tokens LUNC and USTC, as per CoinGecko.
In October, the LFG, a nonprofit organization funded to store reserves for USTC, leveraged the proceeds of the $100 million AVAX purchase to revitalize stablecoin efforts. But after the collapse, Terraform Labs, which had built the Terra blockchain, was left to clean up the mess, including a $4.5 billion settlement with the Securities and Exchange Commission last month.
The repurchase agreement is expected to simplify the ongoing legal proceedings, the bankruptcy filing says. The settlement was good for reducing litigation costs and making more assets available to creditors, Terraform Labs wrote. According to Terraform Labs, the firm will recover an amount close to the current market value of 1.97 million AVAX tokens.
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Avalanche Foundation’s Decision Strengthens Its Asset Base
Both parties had a calculated approach to determine the settlement amount of the repurchase based on the volume-weighted average price of AVAX tokens during an early August 7-day period. Importantly, this agreement is much bigger than a financial transaction.
A commitment to strengthen their asset base as the fallout from the Terra collapse ripples through the intricate tapestry of tokens is the meaning of the Avalanche Foundation’s decision to reclaim these tokens. This will improve the foundation’s status in the competitive blockchain landscape through the return of tokens to its holdings.
This also highlights the evolution in the cryptocurrency market, where asset values can change almost overnight thanks to volatility and rapid change. All the fallout from the Terra collapse has put a refocus on exact risk and regulatory conditions within the area, and queries proceed regarding the destiny of the algorithmic stablecoins.
In the ongoing efforts to close down Terraform Labs, it has given potential payout estimates from $185 million to $442 million for its restructuring. The company has admitted that it is difficult to estimate its total losses, but like others in the cryptocurrency industry, it has hinted that it is facing unprecedented challenges.
Conclusion
It’s a significant moment in the crypto space as the Avalanche Foundation’s repurchase of 1.97 million AVAX tokens makes it the latest strategic AVAX buyer alongside the likes of Coinbase and Uphold. This decision not only stabilizes its asset base but also confirms its involvement in being a resilient blockchain in the rollercoaster world of its existence after the Terra collapse.
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