- Seven big players are likely to have triggered the de-pegging of UST.
- Celsius accounted for over 10% of the total flow volumes of UST on May 7 and May 8.
Given the horrific way in which the de-pegging of UST occurred, there is a lot of interest to learn what exactly led to the black swan event. Using the information on the blockchain ledger, one can determine the series of events related to the de-pegging.
An analysis by the blockchain analytics company Nansen suggested that the outbreak of chaos began at the decentralized exchange protocol Curve. Token liquidity providers have an incentive to maintain the price of tokens by balancing their supply with those of other, similarly priced tokens. UST-3pool was one such liquidity pool that allowed UST to be swapped for USDC, DAI, or USDT.
In the chart below, we can see the UST flows in and out of aggregated Curve pools. We can observe that from May 7 to May 9, there are many spikes in the flow volumes in and out of Curve. For a stablecoin, this is a very rare event. Although liquidity pools generally do their best to keep the price pegged, there is the possibility of huge withdrawals and inflows temporarily causing the token price to fluctuate.
Using on-chain data, Nansen pinpointed seven big players who might have triggered the de-pegging as they launched the offensive on Curve by swapping UST for other stablecoins. While several heavy DEX traders and token millionaires were involved in the sell-off, one name that stands out on the list is Celsius, a major crypto lending platform that accounts for over 10% of the total flow volumes of UST on May 7 and 8.
These addresses had first withdrawn UST from Anchor. Anchor is Terra’s lending product that offered yields of close to 20%. The reason it provided high yields was so that users don’t withdraw funds. However, the top 7 addresses relentlessly withdrew from May 7 to May 9. They then sent them to Ethereum through a multi-chain bridge, Wormhole, and then swapped them for other stablecoins on Curve.
Meanwhile, the Luna Foundation Guard, a Terra-affiliated organization was trying to defend UST’s peg. It tried to counteract by withdrawing about 339.6 million UST tokens from Curve on May 7 and 8 and adding other stablecoins back to the Curve pool. However, the attempts were in vain as the top addresses transferred 2 billion UST tokens during the same period.
While this happened, UST’s price had remained off its peg for a long time. This proved to be the final nail in the coffin for UST as arbitrage traders latched onto the opportunities across different centralized exchanges and began selling UST. Around 165 million UST were sent to CEXes on May 10, as a result of which UST never returned to its original peg.