Terra Labs and Luna Guard commission audits to defend themselves against claims of financial mismanagement
November 17, 2022 5:20 AM
Nothing improper was discovered during the audit, which monitored attempts to maintain the UST peg from May 8–12. LFG made inferences from the facts concerning the frozen funds.
Between May 8 and 12, the Luna Foundation Guard (LFG) and Terraform Labs (TFL) commissioned a technical examination of their attempts to preserve the price of TerraUSD (UST), which has subsequently been rebranded TerraUSD Classic (USTC). According to the LFG blog, the audit was conducted to address "allegations raised in social media" about the whereabouts of money moved during efforts to protect the UST dollar peg.
Keeping the UST peg in place cost LFG $49.8 million in stablecoins and 80,081 Bitcoin(BTC), according to the audit. That matched what LFG had tweeted on May 16th, so it was all good. To protect the peg, TFL also paid $613 million. JS Held, a firm based in the United States, did the audit.
According to LFG's analysis of the audit's findings, the company's resources were not improperly utilised and no insiders benefited financially. It was also said by LFG that the audit proved that "all LFG money are stored in self-hosted wallets, have not moved since the May 16th tweet, and have not been frozen."
The conclusion is not supported by the text, but it is nevertheless intriguing in light of a May 23 request by South Korean police that exchanges freeze cash related to LFG. On the 15th of September, South Korean authorities had 3,313 Bitcoins frozen after they were moved from a wallet set up in the name of LFG.
Do Kwon, founder of Terraform Labs and the subject of criminal accusations in South Korea, has been quoted on the LFG blog as saying:
"It is critical to distinguish between Terra's example, in which a transparent, open-source decentralized stablecoin failed to preserve peg parity and its founders spent proprietary capital to defend it, and the failure of centralized custodial systems, in which its operators misappropriated other people's money (client funds) for financial gain."
Kwon apologized to everyone who had lost money at UST in the Twitter thread reporting the audit. The system was open and accessible to anyone who wanted to look at the code, but as the developer, I should have been more aware of the potential dangers and done a better job of warning others.