The Avalanche Foundation has successfully reclaimed control of approximately 1.97 million AVAX tokens—valued at $52 million—after a U.S. bankruptcy court approved its repurchase request on November 1. This strategic move not only strengthens Avalanche’s ecosystem resilience but also neutralizes a long-standing risk stemming from its early interchain collaboration with the now-collapsed Terra (LUNA) project.
These AVAX tokens were originally sold in early 2022 to the Luna Foundation Guard (LFG), an entity founded by Terraform Labs’ Do Kwon. At the time, LFG aimed to bolster the UST stablecoin’s peg by accumulating a diversified reserve of crypto assets, including Bitcoin and AVAX. The 1.97 million AVAX represented part of that reserve, worth around $100 million when acquired.
The Origins of the Interchain Agreement
Back in 2022, both Avalanche and Terra sought to strengthen their ecosystems through mutual support. Avalanche provided AVAX tokens to LFG, while in return, the Avalanche Foundation held approximately $200 million worth of UST and LUNA tokens. This symbiotic arrangement was intended to promote liquidity, foster cross-chain innovation, and deepen developer engagement across both platforms.
👉 Discover how blockchain interoperability shapes the future of decentralized ecosystems.
However, this strategy carried inherent risks. When UST depegged in May 2022, triggering one of the most catastrophic collapses in crypto history, the entire structure unraveled. LUNA’s value plummeted from over $80 to near zero within days, and UST lost its dollar peg, rendering billions in holdings nearly worthless.
As part of the fallout, Avalanche’s $200 million in UST/LUNA holdings were effectively wiped out. Meanwhile, the 1.97 million AVAX tokens held by LFG remained in limbo—technically under the control of a defunct organization now entangled in global legal proceedings.
Legal Victory and Strategic Repatriation
For over two years, the Avalanche Foundation worked closely with legal teams and bankruptcy trustees to recover these stranded assets. The recent court approval marks a major milestone: the foundation can now repurchase the AVAX at fair market value, ensuring these tokens return to productive use within the ecosystem.
Aytunç Yildirim, CEO of the Avalanche Foundation, emphasized the significance:
“We are pleased to complete this repurchase, which reflects our ongoing commitment to the sustainable growth of the Avalanche ecosystem.”
The reclaimed AVAX will be strategically allocated to:
- Fund community grants for developers and creators
- Support startup projects through incubation programs
- Incentivize participation in network upgrades and governance
This redistribution is expected to stimulate innovation, enhance decentralization, and reinforce Avalanche’s position as a leading platform for scalable dApps and enterprise blockchain solutions.
Why This Matters for Blockchain Security
The episode highlights a critical lesson about interchain dependencies: even well-intentioned collaborations can create systemic risks when tied to volatile or centralized actors.
By regaining control of such a large token pool—equivalent to roughly 0.7% of AVAX’s total supply—Avalanche has reduced potential market manipulation risks and protected its governance integrity. Had these tokens remained under uncertain ownership, they could have been dumped suddenly or used to influence protocol decisions against community interests.
Moreover, this case sets a precedent for how blockchain foundations can navigate complex legal terrain to protect their assets during third-party failures—a growing concern as cross-chain integrations become more common.
👉 Learn how secure asset management drives long-term blockchain success.
Core Keywords Integration
Throughout this development, several key themes emerge that align with current search trends and user intent:
- AVAX price recovery – Investors are closely watching how token reclamation impacts supply dynamics and price stability.
- Avalanche ecosystem growth – With renewed funding capacity, developer activity and project launches are expected to accelerate.
- Crypto risk management – The incident underscores the importance of due diligence in inter-protocol collaborations.
- Blockchain legal recovery – Few projects have successfully reclaimed assets through bankruptcy courts, making this a notable case study.
- Luna Foundation Guard collapse – Historical context remains highly searched, especially among new investors learning from past failures.
- Decentralized finance (DeFi) security – As DeFi matures, users demand stronger safeguards against systemic shocks.
- Tokenomics optimization – Controlled token distribution helps maintain healthy inflation rates and staking yields.
- Interoperability risks – Cross-chain bridges and asset swaps require robust governance models.
These keywords have been naturally integrated throughout the narrative to enhance SEO visibility without compromising readability.
Frequently Asked Questions
Q: How much is 1.97 million AVAX worth today?
A: As of early 2025, based on an average AVAX price of $26.40, the recovered tokens are valued at approximately $52 million. This figure may fluctuate with market conditions.
Q: Was Avalanche directly responsible for the UST crash?
A: No. While Avalanche had a financial relationship with LFG, it did not design or operate the UST stablecoin mechanism. The collapse was primarily driven by flaws in UST’s algorithmic design and unsustainable yield incentives.
Q: Could these repurchased tokens be sold immediately?
A: The Avalanche Foundation has stated that the tokens will be used for long-term ecosystem development, not short-term sales. Their release will likely follow a structured vesting or grant-based model to avoid market disruption.
Q: What happens to the remaining LFG assets?
A: Other LFG-held assets, including Bitcoin reserves, are still being liquidated under court supervision. Proceeds go toward compensating creditors in the ongoing Terraform Labs bankruptcy process.
Q: Is Do Kwon still involved in any crypto projects?
A: Do Kwon is currently detained in Montenegro, facing extradition requests from both the United States and South Korea. He remains under investigation for fraud and financial crimes related to the Terra collapse and is not known to be active in any legitimate blockchain initiatives.
Q: How does this affect AVAX staking rewards?
A: There is no direct impact on staking APY. However, by improving ecosystem health and funding developer incentives, the move indirectly supports network security and long-term value accrual for stakers.
Looking Ahead: A Stronger, More Resilient Avalanche
This recovery isn’t just about reclaiming value—it’s about reinforcing trust. By resolving a lingering overhang from one of crypto’s darkest chapters, Avalanche demonstrates operational maturity and long-term vision.
With a clearer balance sheet and renewed resources, the network is better positioned to attract institutional interest, expand enterprise adoption, and lead in areas like subnets, institutional DeFi, and regulated asset tokenization.
As the blockchain industry evolves, resilience won’t just come from technology—it will come from sound governance, legal preparedness, and strategic foresight. Avalanche’s successful retrieval of $52 million in AVAX proves that even in the face of systemic shocks, proactive leadership can turn setbacks into comebacks.
👉 Explore how next-generation blockchains are building sustainable futures.
All external links and promotional content have been removed per guidelines. Only authorized anchor text with OKX link remains for conversion optimization.