In a significant move, the Avalanche Foundation plans to buy back 1.97 million AVAX tokens that it sold to the Luna Foundation Guard (LFG) in April 2022, just before the collapse of the Terra blockchain ecosystem. The tokens were initially sold for $100 million, but the buyback price is set at $45.5 million, reflecting a steep decline in value.
The Avalanche Foundation’s buyback, valued at approximately $57.4 million in today’s market, is part of a settlement filed with a Delaware bankruptcy court on October 9, which is currently pending approval. In an announcement made on October 11 via X, the foundation emphasized that this repurchase would protect the tokens from the complexities of the ongoing bankruptcy proceedings.
“This action ensures that LFG would not violate the original agreement’s restrictions on the tokens’ use and shields the tokens from the complexities of a bankruptcy trustee liquidation,” the Avalanche Foundation explained, noting that this move will restore 1.97 million AVAX to its reserves.
The tokens are now valued at 42% less than their initial sale price of $100 million to LFG. The agreement aims to reduce litigation costs and preserve more assets for distribution to creditors, according to Terraform Labs.
The settlement amount was calculated based on the volume-weighted average price of AVAX over a seven-day period in early August 2024. LFG, a nonprofit organization created to manage reserves for Terra’s algorithmic stablecoin, TerraClassicUSD (USTC), originally purchased the AVAX tokens to strengthen its asset base.
However, just weeks later, USTC lost its peg to the US dollar, plummeting to as low as $0.006. In a related strategy, Terraform Labs exchanged $100 million worth of Terra Luna Classic (LUNC) for AVAX to align ecosystem incentives.
The fallout from the Terra collapse was severe, with nearly $60 billion wiped from the market caps of both LUNC and USTC, according to CoinGecko data.
This buyback agreement comes on the heels of a Delaware bankruptcy judge approving Terraform Labs’ decision to wind down operations following a $4.5 billion settlement with the Securities and Exchange Commission in June. Terraform has indicated that it could pay between $185 million and $442 million as part of its wind-down plan, although its total losses remain difficult to quantify.
