The Avalanche Foundation is set to repurchase 1.97 million Avalanche (AVAX) tokens that were sold to the Luna Foundation Guard (LFG) in April 2022, just one month before the Terra blockchain ecosystem collapsed.
The foundation has agreed to buy back the tokens for $45.5 million, although their current market value stands at $57.4 million.
The move is part of a settlement agreement filed in a Delaware Bankruptcy Court on Oct. 9, and is currently pending court approval, according to an Oct. 11 post by the foundation on X.
The Repurchase to Prevent Future Complications
The foundation explained that this repurchase ensures LFG will not breach the original agreement’s terms regarding the use of the tokens.
It also protects the tokens from complications that could arise during a potential liquidation by a bankruptcy trustee.
By reacquiring the tokens, the Avalanche Foundation brings 1.97 million AVAX back into its own holdings.
The current value of the AVAX tokens is 42% lower than the $100 million LFG paid for them in April 2022.
The Avalanche Foundation has negotiated an agreement to repurchase all AVAX tokens previously sold to the Luna Foundation Guard (LFG) in April 2022, which is now awaiting approval from the Bankruptcy Court.
This action ensures that LFG would not violate the original…— Avalanche Foundation
(@AvalancheFDN) October 11, 2024
Despite the price drop, Terraform Labs, the company behind the Terra blockchain, noted in its filing that the settlement will reduce litigation costs and preserve more assets for creditors.
The settlement price was calculated based on the volume-weighted average price of AVAX over a seven-day period in early August 2024.
LFG had purchased the AVAX tokens to build reserves for TerraClassicUSD (USTC), an algorithmic stablecoin that later lost its peg to the U.S. dollar, dropping as low as $0.006.
Terraform Labs also swapped $100 million worth of Terra Luna Classic (LUNC) for AVAX in an attempt to align ecosystem incentives in April 2022.
Following the collapse of the Terra ecosystem, nearly $60 billion was wiped from LUNC and USTC’s market caps.
Judge Signs Off on $4.5B Terraform, Do Kwon Settlement
In July, U.S. District Court Judge Jed Rakoff of the Southern District of New York (SDNY) approved a settlement that will require Terraform Labs and Kwon to pay a staggering $4.5 billion in disgorgement and civil penalties.
Additionally, they will be permanently banned from engaging in any transactions involving “crypto asset securities,” which includes tokens within the Terra ecosystem.
The settlement came after initial proposals from the SEC suggested a $5.3 billion penalty, which Terraform Labs contested by advocating for a maximum fine of $1 million.
Ultimately, on June 6, the legal representatives for both Kwon and Terraform Labs agreed to the SEC’s revised settlement offer of $4.5 billion.
It is important to note that Kwon, who is currently in custody in Montenegro awaiting a decision on his extradition, did not attend the trial where the settlement was reached.
Terraform Labs, currently operating under Chapter 11 bankruptcy protection, faces the challenge of how to fulfill the substantial financial obligations imposed by the settlement.
According to the trial testimony of the company’s current CEO, Chris Amani, Terraform Labs has approximately $150 million in assets.
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