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Blockchain analytics company Nansen linked the de-peg of Terra\u2019s US dollar stablecoin to seven large crypto wallets, among them a wallet associated with crypto lending platform Celsius, whose massive sales of UST triggered a stampede for the exit.<\/p>\n
UST maintained its peg to the US dollar through a complex network of arbitrageurs \u2013 traders who bought and sold the token, as well as a linked, volatile crypto called LUNA, to profit from price differences across exchanges and DeFi liquidity pools.<\/p>\n
This all worked pretty well since UST launched in December 2020 \u2013 until the market lost confidence in the mechanism earlier this month, sending the network into a death spiral that plunged UST to $0.02 and LUNA from well over $100 to fractions of a cent.<\/p>\n
Nansen\u2019s report<\/a>, released Friday, claims that seven arbitrageurs contributed to UST\u2019s depegging by flooding shallow liquidity pools on Curve with huge amounts of UST.\u00a0<\/p>\n Liquidity providers on Curve, then DeFi\u2019s largest protocol by total value locked, are incentivized to maintain the prices of tokens in liquidity pools by balancing their supplies with other, similarly priced tokens, but huge withdrawals and inflows can temporarily throw the price of the tokens out of whack.\u00a0<\/p>\n Using on-chain data, Nansen traced seven power users who may have triggered the depeg when they rushed to sell huge amounts of UST on Curve.<\/p>\n The seven wallets withdrew UST from Anchor\u00a0 \u2013 Terra\u2019s lending product that offered yields of close to 20% before its collapse \u2013 sent them to Ethereum via multi-chain bridge Wormhole, then swapped them on Curve, the largest DeFi protocol, for other stablecoins.<\/p>\n Right before the depeg, the seven wallets, including the one linked to Celsius, sent so much UST to Curve that the price of the stablecoin went awry.\u00a0<\/p>\n Luna Foundation Guard \u2013 a Terra-linked organization that tried to defend UST\u2019s peg \u2013 tried to counteract this by withdrawing about 150M UST from Curve on May 7, and adding other stablecoins back into the Curve pool<\/a>.<\/p>\n But shortly after, five other addresses sold another deluge of UST on Curve. LFG attempted to defend the peg once again by withdrawing 189.6M UST. The war continued into the morning of May 8.\u00a0<\/p>\n Between May 7 and May 10, Nansen reported that the top 20 addresses withdrew 2B UST from Anchor \u2013 about 11% of UST\u2019s market cap at the time. The Block <\/em>reported<\/a> on May 13 that Celsius pulled out at least $500M of funds from Anchor.<\/p>\n But LFG\u2019s attempts to balance the Curve pool were insufficient in the face of relentless selling. UST inflows to centralized exchanges like Binance gathered momentum on May 9. That peaked on May 10, when 165M UST was sent to centralized exchanges.\u00a0<\/p>\n The on-chain data disputes the popular belief that a single \u2018bad actor\u2019 crashed Terra\u2019s US dollar stablecoin earlier this month.<\/p>\n \u201cWhile many of these wallets were likely acting independently, collectively, arbitrageurs influenced a liquidity imbalance that ultimately led to the UST\/LUNA death spiral,\u201d Nansen tweeted<\/a>.\u00a0<\/p>\n Even without Anchor, Celsius still offers interest rates of up to 9.32% on stablecoin deposits, so long as interest is paid in CEL, the platform\u2019s utility token. The token fell sharply when UST depegged, from about $2.17 to $0.63.<\/p>\n Do Kwon, the founder of Terra, has since relaunched LUNA on a new blockchain, Terra 2.0. The new chain doesn\u2019t feature an algorithmic stablecoin.\u00a0<\/p>\nDeluge of Sales<\/h4>\n