By Alicia Maher
Multiple data analytics suggest that Terraform Labs have been withdrawing liquidity from the UST ecosystem. On Sunday, top crypto researcher, Mudit Gupta, stated that something fishy was going on within the UST ecosystem. Gupta revealed that huge amounts of UST coins are being transferred from the curve finance DeFi protocol. Hence, it was no surprise that the UST lost its USD peg as arbitragers started having a field day.
UST fiasco is very fishy.
– Terraform Labs removed $150m of UST liquidity from Curve yesterday
– 1 minute later, a freshly funded address bridged $84m of UST to Ethereum (Initiated bridging before TFL removed liquidity)
– 4 min later, it dumped the UST, triggering the sell-off— Mudit Gupta (@Mudit__Gupta) May 8, 2022
Gupta claimed a freshly funded address that dumped the $84M worth of UST bridged to Ethereum triggered the intense sell-off.
Suspicious Timing
While Gupta clarified that Terraform Labs might never have the intention of de-pegging the UST, the timing of events seemed fishy. Gupta commented on his previous tweet, saying, “the events resemble a well-planned approach that only insiders could have planned except that it was leaked.”
Then, he added that several other conclusions could also be drawn from these events, or everything may not seem as they look. While UST lost its USD peg to $0.99 on May 8, LUNA’s price declined. However, the latest Coingecko data revealed that UST trades slightly less than the dollar at $0.996.
Do Kwon Explains Why Terraform Labs Removed 150M UST From Curve Finance
While responding to the information that Terraform Labs withdrew 150M UST from curve finance, the lab’s founder, Do Kwon, confirmed the information to be true. But he explained that the UST withdrawn from Curve Finance was to be deployed in 4pool’s liquidity pool. He also said, “we withdrew 100M UST to offset the imbalances we discovered were beginning to form.”
On Monday, the LFG revealed that it would loan $760m in BTC to OTC trade platforms to ensure that the UST maintains its USD peg. Do Kwon gave the explanation following an allegation that Terraform Labs was starting to sell off its BTC holdings at the current market price. The sell-off would have meant selling at a loss since Terraform Labs bought the BTC at higher prices.
Kwon explained that Terraform Labs only provides the amount as a loan to a market maker to ensure that the UST retains its USD peg. Then, he added that the firm would rebalance with BTC if there is any UST imbalance or buy BTC if UST becomes surplus.
1/ The LFG Council just voted to deploy 1.5B in capital (0.75B in BTC, 0.75B in UST) to allay market concerns around UST. Some more context on why and how: https://t.co/TfaAPkzgUJ
— Do Kwon 🌕 (@stablekwon) May 9, 2022
The last few days’ events have made industry analysts conclude that the terra ecosystem isn’t decentralized like an ideal crypto ecosystem.
LUNA Price Declines
The actions of the LFG have adversely affected LUNA’s price. Coingecko data revealed that LUNA’s price has declined by 8.6% in the last 12 hours and now trades at $60.65. Terraform Labs’ native token has lost 25% in the past seven days and has dipped by 49% from its peak price of $118.9, which it attained early last month.