Market Analysis

Seven Wallets May Have Caused Terra Meltdown: Nansen


The UST depeg may have simply been the consequence of savvy risk management, says the report.

Key Takeaways

  • A new report by Nansen claims seven wallets triggered the UST depeg.
  • The relative lack of liquidity in the Curve pools securing UST to other stablecoins could have initiated its price destabilization.
  • Nansen pushes back against the idea of a malicious attack, arguing the Terra meltdown could very well have been the result of large funds practicing risk management.

A new Nansen report argues that on-chain metrics show seven different wallets destabilized UST by selling large amounts of the coin into relatively illiquid Curve liquidity pools. However, the report pushes back against the idea that the collapse was brought on by a malicious attack. 

Seven Wallets

A new on-chain investigation by Nansen suggests that Terra’s UST depeg may have been initiated by a small number of players.

According to the report, seven main wallets withdrew UST funds from Anchor protocol on Terra on May 7, bridged these funds from Terra to Ethereum via Wormhole, and swapped UST for USDC in Curve’s liquidity pools. The relative lack of liquidity in the pools securing UST to other stablecoins then triggered the depegging process.

The report comes three weeks after the Terra stablecoin lost its peg, sending the LUNA token’s price from $77 to $0.00014 and wiping out more than $43 billion dollars from the crypto market.

On-chain data also suggests the seven wallets exploited arbitraging inefficiencies between Curve, decentralized exchanges, and centralized exchanges (especially Binance) as UST started losing its peg.

Nansen’s report pushes back against the narrative that UST’s destabilization was caused by a single attacker, arguing it could have “resulted from the investment decisions of several well-funded entities” in order to manage risk. It points to the existence of alert systems enabling funds to detect transactions of more than $20 million in and out of Curve pools.

Of the seven wallets identified by Nansen, one is labeled as belonging to crypto company Celsius, two to “Token Millionaires” (meaning they have a token balance worth north of $1 million) and two to “Heavy DEX Traders” (wallets in the top 1% in terms of the number of trades or volume traded on decentralized exchanges).

Nevertheless, Nansen is not able to confirm or deny whether the destabilization of UST had been coordinated off-chain. The analysis also restricts itself to Terra and Ethereum and does not take into account outflows towards other chains such as Solana or BNB chain.

Terra is planning to launch a second version of its blockchain on May 28th, 2022 at around 06:00 AM UTC.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.

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