The Avalanche Foundation is set to repurchase 1.97 million Avalanche (AVAX) tokens that it previously sold to the Luna Foundation Guard (LFG) in April 2022, just a month before the Terra blockchain ecosystem’s collapse. The purchase agreement, valued at $45.5 million, aims to recover tokens now worth approximately $57.4 million in the open market.
The repurchase was announced on October 11 through an X post by the Avalanche Foundation, which emphasized that the move ensures LFG’s adherence to the original agreement’s restrictions on the tokens’ use. The transaction will also shield the AVAX tokens from the complexities of liquidation by a bankruptcy trustee.
“This action protects the tokens from any potential misuse and returns 1.97 million AVAX to the foundation’s holdings,” the Avalanche Foundation explained.
The repurchase agreement is currently pending approval in a Delaware Bankruptcy Court. If approved, it will help reduce litigation costs and preserve assets available for distribution to Terraform Labs’ creditors.
Impact of Terra’s Collapse
In April 2022, LFG purchased the AVAX tokens for $100 million to bolster the reserves for Terra’s algorithmic stablecoin, TerraClassicUSD (USTC). However, less than a month after the purchase, USTC lost its peg to the U.S. dollar, collapsing to $0.006 and triggering one of the largest crises in cryptocurrency history. Terra’s blockchain ecosystem, including Terra Luna Classic (LUNC), was severely impacted, with nearly $60 billion wiped from its market cap.
The current repurchase price for the AVAX tokens is about 42% lower than what LFG originally paid in 2022, highlighting the aftermath of Terra’s collapse on its assets.
The Agreement’s Broader Context
The agreement to repurchase the AVAX tokens comes as Terraform Labs winds down operations following its $4.5 billion settlement with the U.S. Securities and Exchange Commission (SEC) in June. With a proposed winding down plan, Terraform Labs has indicated it could pay between $185 million and $442 million, although exact losses remain difficult to estimate.
The repurchase deal uses the volume-weighted average price of AVAX tokens over a seven-day period in August 2024, which ensures that Terraform will recover close to the current market value for the tokens.
Conclusion
As both the Avalanche Foundation and Terraform Labs navigate the complexities of crypto’s turbulent regulatory landscape, the repurchase agreement represents a key milestone in efforts to resolve ongoing legal and financial challenges. It reflects a strategic move by the Avalanche Foundation to recover its AVAX tokens and protect them from further financial complexities while maintaining stability for the blockchain ecosystem.
