Jump Crypto – the crypto dedicated arm of Jump Trading – has released a report analyzing the early stages TerraUSD (UST)’s de-pegging event. The company, which was heavily involved with Terra’s blockchain, found that a small set of whales were responsible for triggering UST’s initial price pressure.
Low Liquidity on Curve
According to the report released on Thursday, the de-pegging event began on Saturday, May 7th, when a “series of critical transactions” was conducted in the UST/3CRV Curve pool. Within a 75-minute timeframe, Terraform Labs (TFL) withdrew $250 million in UST liquidity from the pool.
Meanwhile, two anonymous whale addresses swapped a total of $185 million of UST back into the pool, in exchange for USDC. The transactions left the pool very low on liquidity overall and were followed by a “flurry of activity,” within.
Earlier in the same day, one of those same wallets had transferred $108 million worth of UST to Binance. This coincided with elevating trading volumes at Binance and worsening liquidity at Curve.
Trading volume refers to the amount of security or cryptocurrency being traded at a given time. Meanwhile, liquidity refers to the availability of an asset in the market. When assets are low on liquidity, it is easier to create price spreads and shift their prices with singular, large transactions.
“We do not know who controls Wallet A,” said the firm, referring to the wallet that dumped UST on Binance. “They traded in large size, but their activity differs from what would be expected from an active or sophisticated trading operation.”
Abandoning Anchor Protocol
The second set of contributors were large withdrawals from Anchor protocol – a popular lending service on Terra that allowed users to borrow and lend UST. Anchor held 72% of the UST supply in the weeks leading up to Terra’s fall (about $12 billion worth), due to its highly attractive 19% APY.
Jump reports that “large outflows” of UST were detected leaving Anchor protocol overnight on Saturday, May 7th, and again in the late morning of Monday, May 9th.
The outflows – which together pressured UST meaningfully off peg – were driven primarily by large depositors. By contrast, small depositors were found to increase their exposure to Terra in those three days.
Finally, the simultaneous pullback in the crypto markets at the time further enforced UST’s price deviation. Due to “risk-off” market sentiment following the Federal Reserve’s interest rate hikes, investors were exiting positions in Bitcoin and all of crypto – including UST.
In the days leading up to Terra’s collapse, co-founder Do Kwon retweeted a post echoing a similar theory about the event, claiming that the de-peg was a deliberate short attack on the ecosystem. As of now, the community has launched Terra 2.0, which has abandoned the use of an algorithmic stablecoin entirely.