Activities of Celsius Network Sets off UST Collapse in Part, Says Researcher

The collapse of UST, TerraUSD stablecoin had sent shockwaves throughout the crypto market. And as per researcher Nansen, it cannot be attributed to a single attacker. Instead, they found the trades of a small number of traders, including the Celsius Network as a contributing player. 

UST, built on the Terra blockchain, was supposed to keep its dollar peg using algorithms and trade incentives that included a sister token called Luna. UST, built on the Terra blockchain, was supposed to keep its dollar peg using algorithms and trade incentives that included a sister token called Luna. It picked up steam given that users could earn up to 20% interest by lending it on Terra’s Anchor Protocol. 

However, it ceased to function efficiently earlier this month as selling pressure sparked a “death spiral” that sent UST and Luna plunging, wiping out more than 40 billion USD in market value. The impact caused broader market falls and continues to put downward pressure on the prices of numerous coins. Read More

The Investigation of Terra’s Woes

“We deny the common narrative of a single ‘attacker’ or ‘hacker’ aiming to destabilize UST,” Nansen stated in a research note released today based on its analysis of blockchain data from 7th to 11th May, when the stablecoin crashed.

“In the context of unstable macroeconomic and market conditions, the de-peg of UST could perhaps have occurred from the investment choices of various well-funded firms, such as to adhere to risk-management limits or otherwise to reduce UST allocations invested into Anchor.”

Although the trading activity may not have been done to destabilize the coin, it breached UST’s 1-to-1 peg with the US dollar, contributing to the coin’s eventual demise, according to Nansen.

 

Nansen’s Finding Behind UST Peg Loss

Nasen discovered that some of these participants profited from arbitrage bets on the differential in UST’s price on the Curve lending app versus where it traded on decentralized and centralized exchanges such as Coinbase Global Inc.

After Terra’s co-founder Do Kwon ridiculed users’ concerns in a tweet, the struggle involving UST inflows and outflows on Curve heated up.

Curve received roughly 150 million UST from a wallet affiliated with the Luna Foundation Guard, of which Kwon was a founding member and was also responsible for protecting UST’s peg. 

After that, four addresses, one of which was linked to Celsius, sent around 105 million UST to Curve. “The back-and-forth continued into the morning of 8th May,” Nansen stated, adding that LFG responded with UST withdrawals.

A small group of institutional investors began pulling UST from Anchor Protocol and transferring the assets to ETH via the Wormhole bridge. They then traded huge sums of UST for other stablecoins on Curve, profiting from arbitrage between Curve, decentralized, and centralized exchanges by trading positions when UST began to lose its peg. According to Nansen, outflows from Anchor commenced in mid-April of this year.

Nansen claimed that two wallet addresses “seriously impacted the UST de-peg,” one of which was linked to Celsius. 

According to Nansen, the two addresses took roughly 420 million UST from Anchor in 15 activities, and they were the top wallets at the moment that used the Wormhole bridge to move assets into Ethereum. Celsius was also “a close counterparty” who “sent and received monies” from another wallet whose activities resulted in the de-pegging, it added.