Did The VCs Get Burned In The Terra-Luna Fiasco?

    Over the past two weeks, we may have heard many stories of people who lost their savings in the Terra-Luna event. But what about the Venture Capital (VC) firms that had invested in the Terra ecosystem? Did they get burned as well? A few VCs shared their perspective of what happened.

    Galaxy Digital’s Investment Into The LFG Ecosystem

    Crypto merchant bank Galaxy Digital’s CEO Mike Novogratz was among the first major investors who revealed their Luna investments post the crash. Novogratz took to Twitter last week, explaining what happened to Galaxy amid the crash.

    He noted that Galaxy’s “principal investments team invested in Luna in Q4 of 2020 using balance sheet capital”. He claimed that the team’s “initial thesis for investing in Luna was centered around the expansion of blockchain native payments systems”. However, Novogratz pointed out that Galaxy was able to take the hit from the flash-crash of LUNA/UST since they reinforced a few core tenets of investing, especially for crypto. 

    What Led To The Crash And How Galaxy Digital Worked Around It?

    Novogratz noted that the company kept a diversified portfolio, took profits along the way, and had also built a risk management framework for black swan events like these. In light of this, he also emphasized that it is important for investors to understand that all investments happen in a macro framework, explaining that it was a macro backdrop that put pressure on Luna and the reserves held to back UST, which eventually led to the crash.  

    The CEO said 2022’s global macro backdrop has been difficult for all risk assets so far. He further referred to stats noting that “growth stocks with negative cash flow are down as much as 50-70%,” followed by the crypto market, “with core assets like BTC and ETH down about 58% each from all-time highs – and altcoins are down an average of 80% from all-time highs”.

    Novogratz added that Central bankers have been in the early stages of unwinding a massive liquidity bubble – fueled by unprecedented fiscal and monetary policy injections into economies across the globe. In light of this, “the “free money forever” ethos of the last decade has left us staring in the face of the biggest bout of inflation since the 70s”. 

    Delphi Sits On A Large Unrealized Loss

    Along with Galaxy Digital, research firm Delphi Digital also declared losses caused by the Terra-Luna crash. Last week, in a blog post, the company revealed that the Delphi Ventures Master Fund purchased a small amount of LUNA amounting to 0.5% of the fund’s net asset value (NAV) on the secondary market in Q1 2021. 

    Following this, as Luna’s market cap increased, Delphi’s position also grew. Furthermore, the fund invested $10 million in LFG’s recent funding round held in February this year. In light of this, Delphi revealed how that investment is worth nothing now and the company is “currently sitting on a large unrealized loss” given it did not sell any LUNA during this event.

    Delphi wrote — “We always knew something like this was possible, and we tried to stress the risks to a system like this in our research and public commentary, but the fact is 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”. 

    Hashed Lost Over $3.5 Billion 

    The South Korea-based early-stage VC Hashed was among the top Terra investors who took a hard hit. Hashed wallet suffered losses amounting to over $3.5 billion according to CoinMarketCap data from April. Following this, South Korean investors suffered from particularly brutal losses according to a local news outlet that revealed: “about 200,000 investors in South Korea are presumed to have invested in TerraUSD and Luna”. 

    According to the industry sources of the publication, the country regulatory watchdogs including — the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) sought local cryptocurrency exchange operators to “share information on transactions linked to TerraUSD and Luna, including the volumes of their trading, their closing prices and the number of relevant investors”. 

    Pantera Liquidated 80% Of Its LUNA Investment Prior To The Crash

    While a majority of VCs recorded losses post the Terra-Luna fiasco, Pantera Capital, which was a major backer of Terraform Labs, liquidated nearly 80% of its LUNA investment prior to the crash. “The market has been fairly frothy over the last year and thus we’d exited the majority of our position before any of this happened,” Joey Krug, co-chief investment officer at Pantera Capital, told The Block. “Roughly 80% over the last year, fairly gradually over time”. 

    Pantera was part of two LFG funding rounds last year — the $25 million round in January 2021 and then the $150 million ecosystem fund round in July 2021. However, Krug claimed that the company bought LUNA separately and it had nothing to do with the LFG ecosystem funding rounds.

    He tweeted in a thread, “to clarify, we didn’t invest in LUNA in those private financing rounds, we bought it once it was in the public markets in July of 2020 via our liquid trading vehicles, not our venture style investments”.

    Palak Malhotra
    Palak is a crypto journalist who focuses on socio-political issues, directly impacting the industry. From Regulatory and Blockchain news to Twitter Wars and Pop-culture influence in crypto, she likes to analyse emerging trends in the market.

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