Two key takeaways from Nansen’s UST stablecoin depeg report
As the dust settles on the cataclysmic collapse of the Terra ecosystem, an on-chain deep-dive carried out by blockchain analytics firm Nansen highlights two major takeaways.
The cryptocurrency ecosystem was awash with varying speculatory theories around the cause of Terra’s algorithmic stablecoin UST’s decoupling from its $1 peg. The who and why seemed a mystery but the outcome was catastrophic, with UST dropping well below $1 while the value of Terra’s stablecoin token plummeting in value as a result.
Nansen undertook an investigation leveraging on-chain data from the Terra ecosystem to the Ethereum blockchain in an effort to chart the chain of events that led to the UST depeg.
It is worth noting that the report does not include potential off-chain events that could have exacerbated the situation, impact on investors, breakdown of net losses between wallets, and what happened to Bitcoin (BTC) reserves backing UST.
The first and biggest takeaway was Nansen’s identification of a small set of addresses or players that identified vulnerabilities in the Terra ecosystem. These actors preyed on the relatively shallow liquidity of Curve pools backing the TerraUSD (UST) peg to other stablecoin and moved to capitalize on arbitrage opportunities.
The report outlines how these actors withdrew UST funds from the Anchor protocol on Terra. These funds were then bridged from Terra to Ethereum making use of the Wormhole infrastructure.
Massive amounts of UST were then swapped with various stablecoins in Curve’s liquidity pools. Nansen then speculated that during the depegging process, some of the identified wallets exploited discrepancies between pricing sources on Curve as well as decentralized and centralized exchanges by taking buying and
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