Yield generation app Stablegains is facing a lawsuit after losing around $44 million worth of user funds in the Terra collapse when it previously said it allocated funds “across a number of stablecoins”.
Fallout from the collapse of the Terra ecosystem continues to unfold with the United States-based yield generation app Stablegains facing potential legal action over its losses from the event.
Users believe Stablegain has allegedly lost up to $44 million worth of deposited funds based on a post on a Terra forum by co-founder Kamil Ryszkowski asking for relief funding. He disclosed that a day before TerraUSD (UST) had lost its peg with the U.S. dollar its users’ funds totaled over 47.6 million UST from 4,878 depositors.
Currently the price of UST is trading at $0.075 according to data from CoinGecko.
A letter from class action law firm Erickson Kramer Osbourne (EKO) sent to Stablegains dated May 14 demands a record of customer accounts, marketing materials and any communications regarding UST.
These guys are in deep trouble – they lost about $42m in funds from 4,878 customers and probably have no way to pay it back (they’re a small startup) because they went all in on Anchor’s invincibility. Conviction bets are great, but not when toying with people’s savings. (2/2) pic.twitter.com/p9S5uFILoF
— FatMan (@FatManTerra) May 19, 2022
“You owe an ‘uncompromising duty to preserve’ any evidence you know or reasonably should know will be relevant evidence in a pending lawsuit” the letter said, adding “failure to comply…may result in civil or criminal penalties”.
EKO verified the letters’ authenticity to Cointelegraph and said it had opened an investigation into the Terra ecosystem collapse for possible class action.
Stablegains users were able to earn up to 15% annual percentage yield (APY) on deposited US dollars which the company apparently swapped to UST to earn yield on the Anchor Protocol.
Documentation from Stablegains’ website updated seven days ago claims that USDC and UST are “the main stablecoins” used.
The site still maintains that “Anchor is our current go-to protocol, and the basis for the Stablegains stable 15%+ APY rate.”
According to cached results of the webpage Stablegains said it allocates funds “across a number of stablecoins to not be fully exposed to the potential instability of one stablecoin” however users allege the company has since amended the wording on how it mitigates risks.
Stablegains has started allowing withdrawals but USDC will only be provided at the market value of UST. Part of the terms and conditions noticed by a user stipulates the company isn’t liable for losses due to the exchange rate.
Hashed takes a big hit
South Korean based venture fund Hashed has taken an estimated $2.9 billion loss on its Terra (LUNA) holdings according to on-chain data.
The crypto wallet linked to Hashed shows the firm still holds nearly 25 million LUNA which could have netted the firm almost $3 billion if sold at the coins all-time high of $118 in early April.
Reportedly Hashed has said that it is “financially sound” and has not been affected by the Luna price collapse.
Finder survey 92% wrong
In late March comparison website Finder conducted a survey of 36 “fintech specialists” who provided some bullish predictions on the price of LUNA.
The survey concluded that the pundits “thought LUNA would be worth $143 by the end of 2022 before rising to $390 by 2025.”
Dr. Dimitrios Salampasis, a financial lecturer at Swinburne University of Technology in Victoria, Australia was one of only three (8.3% of the experts) doubting Terra and was quoted saying algorithmic stablecoins are “inherently fragile and are not stable at all,” and added “LUNA will be existing in a state of perpetual vulnerability.” Well played Dr Salampasis.
‘No plans’ for LFG’s AVAX reserves
The Luna Foundation Guard (LFG), which supports/fails to support the Terra network has “disclosed no plans to use” the Avalanche (AVAX) reserves it holds according to a tweet from the Avalanche blockchain team.
The LFG and Terraform Labs (TFL) purchased around $200 million worth of AVAX in April to back its UST stablecoin. The price of AVAX dropped 30% earlier in May on fears the LFG would sell its AVAX to save the UST peg.
However Avalanche says the TFL portion of over 1 million AVAX has a lockup period of one year.
1/ Some members of the Avalanche Community have inquired about details around the $AVAX reserves that the Luna Foundation Guard and Terraform Labs hold.
Tl;dr: the AVAX is currently immobilized. Below is a transparency report
— Avalanche (@avalancheavax) May 19, 2022
LFG’s treasury currently holds $61 million worth of AVAX and is the second-largest holding behind UST in its $225 million reserves. Avalanche says the proposed Terra chain fork is why the foundation isn’t planning to sell.
Delphi: ‘You were right and we were wrong’
Crypto-focused research and investment group Delphi Digital published a postmortem on May 18 regarding its losses due to the collapse saying it “always knew something like this was possible”.
“We miscalculated the risk of a ‘death spiral’ event coming to fruition. We’ve taken some heat for this over the last week, and we deserve it. The criticism is fair and we accept it.”
The firm didn’t disclose the dollar amount of its losses but said it purchased a “small amount” of LUNA worth around 0.5% of its net asset value (NAV) in the first quarter of 2021 which grew to around 13% of NAV as the price gained and the firm made more investments.
It added less than 5% of its Delphi Ventures deals were in “companies or protocols related to the Terra ecosystem” including a February 2022 $10 million investment into the LFG with the firm writing:
“A $10M investment which, based on the current LUNA price, is entirely lost. Delphi Ventures did not sell any LUNA during this event.”
The news on Terra isn’t all bad, Pantera Capital an early investor in Terra revealed that it had cashed out around 80% of its LUNA investment with the firm turning $1.7 million into around $170 million according to partner Paul Veradittakit.