What Has Led to Luna & UST Meltdown

Published in

CoinLucky

5 min readMay 13, 2022

TerraUSD (UST) continues to decouple with USD; Luna flash crashed from $100 to $0.006, a devastating death spiral is upon UST and Luna. May 12th Coingecko data shows UST 24-hour trading volume was at $4,357,064,726, while Luna price is on a highway to zero.

UST is the third largest stablecoin beside USDT and USDC, also the most populated algorithmic stablecoin. What has possibly caused a token of such scale to crash?

Phrase 1: Big whale sniping UST-3Crv

In midnight on May 8th, LFG withdrew $150 million of liquidity from UST-3Crv for the purpose of assemblying 4Crv pool. At this point, UST-3Crv TVL is around $700 million, and only around $300 million are needed to consume UST liquidity.

Big whales started attacking in such a fleeting moment. 10 minutes after the withdrawl, an address all of a sudden soldoff $84 million of UST. The selloff severely affected the balance of 3Crv pool. In order to restore its liquidity balance, LFG withdrew another $100 million of UST from the pool. This was followed by more selloffs from multiple big whale addresses, every selloff is of millions of UST.

Under the impact of selloffs, UST started decoupling with US dollars. At this point, an address (which people assume belongs to Jump Trading) sold 50 thousand ETH for UST, in an attempt to stabilizing UST’s peg.

Big whales have completed attacking UST-3Crv pool, around $300 million are involved. But if LFG at this time has assemblied a 4Crv pool of $4 billion, then the above attack will not work. The slump that followed proved the failure.

Phrase 2: Anchor UST faced extreme selloff, LFG tried to stabilize UST peg

The small unpeg has created rapidly spreading panic among UST and Luna holders. Starting from May 8th, huge amount of UST, which used to be locked up in Anchor, flowed into the market. This has led to even more UST selloffs.

Pessimistic sentiment aroused as UST failed to return to a pegged state. UST from Anchor were being soldoff in even bigger scale; UST price dropped to 0.95 USD; LFG was forced to liquidate its $700-million Bitcoin reserves. Do Kwon announced on Twitter: “Deploying more capital.”

Then an address starts with “0x599” bought in more than $200 million of UST on the market. Though this action rebalanced UST-3Crv pool, LFG’s liquidated Bitcoin reserves were still driving UST price downward. Soon, the fragile balance of UST-3Crv pool fell once again.

In morning May 10th, Jump Trading and LFG stopped selling Bitcoins to protect UST peg, and let things get worse. UST price severed to 0.6 USD. The UST-3Crv pool ratio of the Curve platform is still heavily skewed, and the ratio was once 91.37%/8.63%.

Phrase 3: final attempt failed

Rumors had it that Jump, Alameda and other institutions have reached an private agreement to put in 2 billion US dollars saving the mess. Also, Binance seems to be involved in the UST defense. According to Hasu, the director of “Uncommon Core”, Binance forcibly set a floor price for UST, making its users unable to submit orders under $0.7.

In midnight on May 11th, LFG was in an attempt to raise $1 billion various institutions to support UST. According to The Block VP of researcher Larry Cermak, LFG has made deals with Jump Trading, Celsius and Jane Street, a total of $700 million aid. Alameda Research‘s proposal, on the other hand, hasn’t reached a mutual understanding. It proposed to get LUNA spot at a 50% discount, lock the position for one year, and unlock it linearly on a monthly basis after one year.

Unfortunately this attempt has failed. On May 11th, Larry stated LFG’s $1 billion financing plan is dead when replying to a comment

“Yea as far as I can tell, the deal is dead LMAO.”

It’s quite rare for a TOP10 cryptocurrency to drop by 97% in 24 hours. The essence of Luna’s downturn is its arbitrage mechanism, which leads to the continuous destruction of UST, additional issuance of Luna, and selling of Luna. A stablecoin pegged to US dollars but not backed by dollars is no different from pegged to thin air. There have been suggestions to block this mechanism, but those were ignored arrogantly. The 84 million UST attack is no doubt a fuse to UST’s meltdown.

How to prevent crypto assets from shrinking as an individual investor?

Stablecoin (USDT) investment is undoubtedly the safest investment method at present. Finding a reliable service provider is crucial. Take LuckyHash as an example, its product feature high return rate — up to 65% APY for USDT fixed savings and up to 90% APY for Filecoin fixed savings.

LuckyHash is launching May Investment Contest at 10:00 A.M. on May 15th (GMT+8), in which the top 50 investors can share the prize pool of 35,000 USDT on top of investment profits. New user registered during pre-launch (10:00 A.M. On May 11th (GMT+8) — 9:59 A.M. On May 15th (GMT+8)) can get a free 100-USDT savings voucher.

Join now to make your portfolio green even in a bear market!

— — — — — — — — — — — — — — — — — — — — — — — — — — — —

About LuckyHash

LuckyHash is the world’s leading one-stop crypto asset management platform. It provides pledge-free mining hashrate leasing and waranteed cryptocurrency interest-generating plans.