The Avalanche Foundation has made a strategic decision to repurchase 1.97 million AVAX tokens that were previously sold to the Luna Foundation Guard (LFG) just before the collapse of the Terra ecosystem in 2022. This move, valued at $45.5 million, is designed to safeguard the Avalanche ecosystem from potential disruptions that could arise from the liquidation of these tokens by bankruptcy trustees, following Terraform Labs’ collapse.
In April 2022, just one month before the Terra network’s downfall, LFG purchased these AVAX tokens to bolster the reserves of TerraClassicUSD (USTC), an algorithmic stablecoin designed to maintain its peg to the U.S. dollar. However, the collapse of Terra’s stablecoin led to a broader market crash, wiping out billions of dollars and leaving investors with massive losses​.
The AVAX tokens were originally valued at $100 million, but their current market value has dropped by 42%, now worth around $57.4 million. Despite the loss in value, the Avalanche Foundation has decided to move forward with the repurchase, as the tokens are still integral to maintaining the health and stability of its ecosystem​.
This repurchase is a proactive measure by Avalanche to avoid potential market disruptions that could arise if these tokens were liquidated as part of Terraform Labs’ bankruptcy proceedings. The repurchase agreement, filed in a Delaware Bankruptcy Court in October 2024, is currently awaiting approval. If successful, the move will return the AVAX tokens to the foundation, preventing them from being sold off in large quantities, which could negatively affect AVAX’s market price and overall ecosystem health​.
The foundation has emphasized that this decision helps ensure that LFG does not violate the original agreement’s terms regarding the use of these tokens. It also shields AVAX from the complications and unpredictability of bankruptcy-related liquidation​.
Following the announcement of the repurchase, the price of AVAX surged by over 15%, rising from approximately $25 to nearly $29 in just a few days. This upward momentum reflects growing confidence in Avalanche’s management of its ecosystem and its proactive measures to mitigate risks. By reacquiring these tokens, the Avalanche Foundation is not only aiming to stabilize its network but also to rebuild trust with investors and the broader crypto community​.
The repurchase is seen as a strategic move to align AVAX’s long-term growth with the broader DeFi ecosystem. As Avalanche continues to position itself as a leading Layer-1 blockchain solution, this repurchase helps mitigate risks that could derail its progress, especially as the crypto market remains volatile amid regulatory scrutiny​.
The Avalanche Foundation’s decision to repurchase nearly 2 million AVAX tokens sold to LFG represents a critical step in protecting the ecosystem from potential financial instability. By taking action before these tokens could be liquidated through bankruptcy proceedings, Avalanche is demonstrating its commitment to ensuring the long-term sustainability of its network. As the crypto market navigates its ongoing challenges, this move could serve as a blueprint for other blockchain foundations facing similar dilemmas in maintaining ecosystem health and investor trust.
