Avalanche Foundation Signs Repurchase Agreement With Terraform Labs

The Avalanche Foundation will repurchase the AVAX tokens it sold to Terraform Labs in April 2022, three weeks before the collapse of the Terra ecosystem.

The Avalanche Foundation has signed a repurchase agreement with Terraform Labs, whereby the organization will buy back the 1.97 million AVAX tokens it sold to the company in April, three weeks before the collapse of the Terra ecosystem.

The agreement was signed on October 9th in a Delaware Bankruptcy Court, according to an X post shared by the Avalanche Foundation on Saturday. The organization said it was pleased with the contract as it would shield AVAX’s price from the impacts of liquidation when the court gives Terra Labs the green light to dump tokens to repay its creditors.

The repurchase agreement, which now awaits the court’s approval, will see the Avalanche Foundation pay $46 million for the tokens, whose current market value is $57 million.

When Terraform Labs purchased the AVAX tokens in 2022, it paid $100 million. So, the agreed repurchase value means the collapsed company will have fewer funds to distribute to its creditors. In a court filing, Terra Labs said it will explore other means to recover the remaining amount.

Besides the 1.97 million Avalanche tokens, Terraform Labs holds $100 million worth of AVAX. The company swapped its LUNC holdings to AVAX in April this year to “align ecosystem incentives.”

The repurchase agreement follows the court’s approval of Terraform Labs’ plan to wind down operations after paying $4.5 billion in penalties to the US Securities and Exchange Commission four months ago. As part of its plan to close down, the company has said it will raise roughly $400 million to repay creditors.

Terraform Labs was the company behind the algorithmic stablecoin USTC (TerraClassicUSD), which depegged in May 2022, plummeting to $0.006. Unlike other popular stablecoins, USTC wasn’t collaterized. Instead, Terraform Labs adopted a mint-and-burn mechanism to maintain the stablecoin’s value at $1.

USTC’s downfall brought significant losses across the crypto industry. Several blockchain companies exposed to the stablecoin closed shops as investors collectively lost over $45 billion.

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