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.
Curves with low liquidity
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. Terraform Labs (TFL), which was able to withdraw $250 million in UST liquidity within a short time frame, had access to the pool in just 75 minutes.
In exchange for USDC, two anonymous whale addresses traded $185 million in UST to the pool. The transactions left the pool very low on liquidity overall and were followed by a “flurry of activity,” within.
One of the same wallets had also transferred $108,000,000 worth of UST from Binance earlier in the day. This was in conjunction with an increase in trading volumes at Binance, and worsening liquidity of Curve.
The trading volume is the total amount of security or cryptocurrency that is being traded at any given moment. In the meantime, liquidity is the availability of an asset on a market. Assets with low liquidity make it easier to create price spreads or shift their prices through large, single 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.”
The 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. However, smaller depositors were found increase Terra exposure 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. Terra 2.0 has been launched by the community. It has ceased using an algorithmic stablecoin.