Given the heinous manner in which UST was de-pegged, there is a great deal of curiosity over what exactly caused the black swan event. The sequence of events associated with de-pegging can be determined using information from the blockchain ledger.
According to Nansen, a blockchain analytics business, the spread of instability began with the decentralised exchange protocol Curve. Token liquidity providers have an incentive to keep token prices stable by balancing their supply with that of like valued tokens. One such liquidity pool was UST-3pool, which allowed UST to be exchanged for USDC, DAI, or USDT.
The UST flows into and out of aggregated Curve pools are depicted in the graphic below. We can see that there are multiple spikes in the traffic volumes into and out of Curve from May 7 to May 9. This is an extremely rare occurrence for a stablecoin. Although liquidity pools try their utmost to maintain the price stable, large withdrawals and inflows can cause the token price to fluctuate temporarily.
Nansen used on-chain data to identify seven major players who may have caused the de-pegging as they began an onslaught against Curve by exchanging UST for other stablecoins. While several significant DEX traders and token billionaires were participating in the sell-off, one name sticks out: Celsius, a major crypto lending platform that accounts for more than 10% of total UST flow volumes on May 7 and 8.
These addresses were the first to withdraw UST from Anchor. Terra’s loan product, Anchor, provided yields of close to 20%. It provided high yields in order to keep people from withdrawing monies. However, from May 7 to May 9, the top seven addresses consistently withdrew. They then sent them to Ethereum via Wormhole, a multi-chain bridge, and traded them for other stablecoins on Curve.
Meanwhile, the Terra-affiliated Luna Foundation Guard was attempting to defend UST’s peg. On May 7 and 8, it attempted to counteract by withdrawing about 339.6 million UST tokens from Curve and adding other stablecoins back to the Curve pool. However, the top addresses transferred 2 billion UST tokens during the same time period, hence the efforts were worthless.
While everything was going on, the price of UST had been drifting for quite some time. This proved to be the final nail in the coffin for UST, as arbitrage traders seized on opportunities across many centralised exchanges and began selling UST. On May 10, approximately 165 million UST were delivered to CEXes, causing UST to never return to its initial peg.
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