The central theses
- A new report from Nansen claims seven wallets triggered the UST deferral.
- The relative lack of liquidity in the curve pools backing UST against other stablecoins may have triggered its price destabilization.
- Nansen objects to the idea of a malicious attack, arguing that the Terra meltdown may very well have been the result of large funds practicing risk management.
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A new Nansen report argues that on-chain metrics show seven different wallets have destabilized UST by selling large amounts of the coin into relatively illiquid Curve liquidity pools. However, the report contradicts the notion that the collapse was caused by a malicious attack.
Seven wallets
A new on-chain investigation by Nansen suggests that Terra’s UST deprecation may have been initiated by a small number of players.
According to the report, seven major exchanges withdrew UST funds from the anchor protocol on Terra on May 7, bridged those funds from Terra to Ethereum via Wormhole, and exchanged UST for USDC in Curve’s liquidity pools. The relative lack of liquidity in the pools backing UST to other stablecoins then triggered the depegging process.
The report comes three weeks after the Terra stablecoin lost its peg, taking the price of the LUNA token from $77 to $0.00014 and wiping more than $43 billion from the crypto market.
On-chain data also suggests that the seven wallets exploited arbitrage inefficiencies between Curve, decentralized exchanges, and centralized exchanges (specifically Binance) as UST began to lose its peg.
Nansen’s report contradicts the narrative that UST’s destabilization was caused by a single attacker, arguing that it “could be due to the investment decisions of several well-funded companies” to manage risk. It points to the existence of alert systems that allow funds to detect transactions in excess of $20 million in and out of curve pools.
Of the seven wallets identified by Nansen, one belongs to crypto firm Celsius, two to “Token Millionaires” (meaning they have over $1 million in token balance) and two to “Heavy DEX Traders” (Wallets top 1% in terms of number of trades or volume traded on decentralized exchanges).
Still, Nansen can neither confirm nor deny whether the destabilization of UST was coordinated off-chain. The analysis is also limited to Terra and Ethereum and does not consider outflows towards other chains such as Solana or BNB chain.
Terra plans to launch a second version of its blockchain around 06:00 UTC on May 28, 2022.
Disclosure: At the time of writing this article, the author of this article owned ETH and several other cryptocurrencies.
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