The largest algorithmic stablecoin TerraUSD (UST) briefly lost its dollar peg on Saturday. UST fell to .987 before bouncing back on Sunday. Its sister token, LUNA, fell almost 10%. According to a new conspiracy theory, there might be a mysterious whale involved in a centralized attack.
When UST emerged a while back, it claimed to be the ultimate algorithmic stablecoin and the real backbone of the crypto economy.
Since then Terra’s peg to US Dollar has been broken a couple of times, but it has never been for such a reason.
This weekend’s depeg marks the first time the algorithmic stablecoin has lost its peg since it embarked on its much-publicized bid to build out Bitcoin and Avalanche reserves.
The depeg did not cause Terra to tap into its Bitcoin reserves on Saturday. The deployment of hundreds of millions of dollars of rescue capital appeared enough to bring UST back to around $1.
What happened to UST and its peg to dollar?
It all began with a series of major withdrawals from Anchor Protocol. This is a lending DeFi market that offers high yields to users who deposit UST. While UST’s total circulation supply is $18 billion, Anchor’s total UST deposits accounted for $14 billion prior this weekend. On Saturday it fell down to $11.2 billion.
Large quantities of UST were withdrawn from liquidity pools via Curve, a DeFi protocol that allows users to swap between stablecoins.
Then there was a $150 million liquidity withdrawal from Terra creators Terraform Labs.
Terraform Labs claimed Sunday they made the withdrawal as they were preparing to shuffle around funds between pools. Later Terraform Labs re-deposited $100 million after realizing UST had begun to trade a discount relative to other stablecoins. That’s how UST peg to dollar was lost.
Then something else happened.
Was there an attack on UST?
A single wallet suddenly dumped more than $192 million worth of UST – $84 million on Ethereum and $108 million on Binance.
A conspiracy theory emerged immediately within the Terra community, claiming that the depeg was a “coordinated attack.” No real evidence to that has been published yet.
Then some other forces tried to recover the catastrophic situation.
Another single wallet clearly intended to rescue UST’s peg to dollar swapping over $200 million of UST for Tether (USDT). In theory that was done in order to rebalance UST’s Curve pools and boost Terra’s price.
By Sunday morning there had been some more of similar efforts. Terra bounced back on Sunday afternoon. The UST peg to dollar is now almost re-eastablished. At the time of writing, UST is about $.998.
UST relies on another token, LUNA, to keep its price of a dollar via a set of on-chain mint and burn mechanisms.
Luna’s price has fallen 10% in the past 24 hours and is now worth $66.
UST and Luna are currently the 9th and 10th largest cryptocurrencies by market cap.
There is a new conspiracy theory about UST
Do Kwon, the founder of Terraform Labs, took to Twitter on Saturday with a series of jokes about the fears surrounding the UST peg to dollar.
For example, Kwon tweeted out a chart with the claim that one wallet was responsible for 62% of Anchor withdrawals. But that was a mistake, as the chart clearly pointed that the “62%” figure on his chart referred to all “other” wallets rather than one specific wallet.
While the personality and intentions of that mysterious whale who had started the war on UST and its peg to dollar is unknown, the “savior” wallet clearly belongs to Jump Crypto. That’s a rather bold claim of the adepts of the aforementioned conspiracy theory.
They claim it was Jump Crypto, a financial firm with strong ties to Terra and Terraform Labs. In February Jump stepped in to backstop a $320 million exploit of Solana’s Wormhole bridge.
At the time of writing it is still not clear whether this theory is consistent at all.
UST lost its peg to dollar – Key takeways
- UST suddenly lost its peg to dollar, but has recovered by now.
- One of the possible explanations might be the “centralized” attack by a mysterious whale
- UST and its peg to dollar could have been saved by another whale, who came to the swap a large amount of UST to Tether.