The crash of TerraLUNA to $0.0001372 and the loss of its $1 peg were two events that have shook the crypto community.
UST now rebranded as the USTC or TerraClassic USD is an algorithmic stable coin backed by the collateral token Terra, which has now been rebranded as Terra Classic or LUNC, causing investors to lose their savings.
The loss is because stablecoins are seen as a safe haven for holdings due to their low volatility, which allows their value to stay close to a dollar despite market conditions, hence its attractiveness and impact.
The collapse of LUNA and the major impact of UST losing its peg, Nansen, a blockchain analytics platform, looked at the on-chain data to find out what caused the stable coin to lose its peg. Its analysis shows that more than one actor was responsible for the collapse.
The Nansen report found that a small number of addresses had taken advantage of the weaknesses in the Terra ecosystem. The actors exploited arbitrage opportunities because of the poor liquidity of Curve CRV pools underpinning the TerraUSD UST peg.
Nansen's findings debunked the theory that a single hacker or attacker destabilized UST. Nansen identified seven addresses as being involved in UST losing its peg, with many of them being big players with large token holdings.
According to the report, UST was withdrawn from the Wormhole infrastructure by those wallets from the Terra s Anchor protocol. In case you were wondering, Wormhole is a bridging protocol that allows users to transfer funds from one block chain to another.
After that, enormous sums of UST were exchanged for a variety of stable coins held in Curve's liquidity pools. Nansen hypothesized that some of the discovered wallets took advantage of price disparities on Curve and decentralized and centralized exchanges by buying and selling between them during the collapse of UST.
Data from May 7 to 11 -- the period when UST lost its $1 peg -- was used in Nansen's research to identify important transaction volume data. Nansen looked at social media and forum posts to narrow down that period, identifying major transaction volume on Curve liquidity pools, which led to its three-phase analytical approach.
Nansen looked at transactions in and out of the Curve lending protocol to generate a list of wallets with activity suggesting that they had a significant influence on the UST collapse.
Nansen's observations of transactions occurring via the Wormhole bridge made things more difficult during phase two. It was discovered that only a select few wallets were using the Anchor protocol to send out their UST. Nansen looked into UST and USD Coin USDC sales on centralized exchanges after that.
On-chain evidence was triangulated to build a narrative of the events surrounding the UST stable coin losing its peg. A list of seven wallets that are considered to have played a significant role in the collapse of the Terra ecosystem was presented.
Nansen's research shows some interesting observations made through the use ofBlockchain analytics. One thing is certain: Nansen has chosen not to speculate on what could be going on behind the seven key addresses that were instrumental in the collapse of the stable coin.
The findings of this report help provide a more transparent picture of what led to UST losing its pegs and the collapse of both the UST and LUNA cryptocurrencies.