Two key takeaways from Nansen’s UST stablecoin depeg report

Because the mud settles on the cataclysmic collapse of the Terra ecosystem, an on-chain deep-dive carried out by blockchain analytics agency Nansen highlights two main takeaways.

The cryptocurrency ecosystem was awash with various speculatory theories round the reason for Terra’s algorithmic stablecoin UST’s decoupling from its $1 peg. The who and why appeared a thriller however the consequence was catastrophic, with UST dropping properly beneath $1 whereas the worth of Terra’s stablecoin token plummeted in worth consequently.

Nansen undertook an investigation leveraging on-chain knowledge from the Terra ecosystem to the Ethereum blockchain in an effort to chart the chain of occasions that led to the UST depeg. 

It’s value noting that the report doesn’t embody potential off-chain occasions that might have exacerbated the scenario, affect on traders, breakdown of internet losses between wallets, and what occurred to Bitcoin (BTC) reserves backing UST.

Attackers preyed on shallow Curve liquidity to use arbitrage alternatives

The primary and largest takeaway was Nansen’s identification of a small set of addresses or gamers that recognized vulnerabilities within the Terra ecosystem. These actors preyed on the comparatively shallow liquidity of Curve swimming pools backing the TerraUSD (UST) peg to different stablecoins and moved to capitalize on arbitrage alternatives.

The report outlines how these actors withdrew UST funds from the Anchor protocol on Terra. These funds had been then bridged from Terra to Ethereum making use of the Wormhole infrastructure.

Huge quantities of UST had been then swapped with varied stablecoins in Curve’s liquidity swimming pools. Nansen then speculated that in the course of the depegging course of, a few of the recognized wallets exploited discrepancies between pricing sources on Curve in addition to decentralized and centralized exchanges by taking shopping for and promoting positions throughout exchanges.

Nansen’s report refuted a speculative narrative {that a} single attacker or hacker labored to destabilize UST.

Seven wallets central to UST’s depeg

Nansen’s blockchain evaluation adopted a grounded idea strategy that recognized related transaction quantity knowledge between Could 7 and 11—the time-frame wherein UST misplaced its $1 peg.

The agency reviewed social media and discussion board threads to slim down that specific timeframe, highlighting a outstanding transaction movement on Curve liquidity swimming pools, which led to its three-phase analytical strategy.

Section one concerned the evaluation of transactions out and in of the Curve lending protocol, which allowed Nansen to compile a listing of wallets whose actions recommend a big affect on the UST depegging.

Section two was barely extra sophisticated, as Nansen noticed transactions throughout the Wormhole bridge which will have influenced the depeg occasion. The agency reviewed outflows of UST from the Anchor protocol involving a narrowed-down record of wallets. This was adopted by investigating the sale of UST and USDC on centralized exchanges.

Associated: Exchanges again ‘Terra 2.0 revival plan’ by way of airdrops, itemizing, buyback and burning

The ultimate section concerned triangulating on-chain proof to kind a story of the occasions across the UST depeg. An inventory of seven wallets was then highlighted which might be believed to have been central within the Terra ecosystem collapse.

The Nansen report gives some attention-grabbing insights pushed by blockchain analytics. The core “why” stays a thriller — with the agency opting to not speculate on the potential goals or motivations behind the seven principal addresses that performed a serious function in triggering the depeg of the UST algorithmic stablecoin.