On December 6, 2022, the news revealing the root cause of the May UST depeg surfaced. Fatman Terra, a well-known crypto influencer, took it upon himself to educate the crypto community about scams and bogus investment schemes. This tweet revealed new blockchain data, which he claims to have been collated by an anonymous researcher who also discovered the Hodlnaut insolvency. This data reveals that Terraform Labs began seriously dumping hundreds of millions of UST a few days before the depegging incident.
🧵 New blockchain data reveals the root cause of the May UST depeg. In the 3 weeks leading up to the depeg, one entity dumped over $450m of UST on the open market. 4 days after their last sale, UST started collapsing.
That entity? None other than Terraform Labs. Details inside. pic.twitter.com/aFfzgpBZ5A
— FatMan (@FatManTerra) December 6, 2022
When Terra USD crashed in May 2022, its backup token, Luna (LUNA), likewise collapsed.
LUNA and Terra are two native assets of the Terra platform, a blockchain-based initiative established by Terra Labs, with Do Kwon serving as the company’s co-founder and CEO. At that time, UST has Luna’s support, and the two might be switched. Additionally, Luna was the tenth-largest cryptocurrency with a trade capitalization of approximately $63 billion, but the stablecoin UST lost its peg and crashed to as low as $0.999. The crash caused a lot of people to lose their money.
As earlier mentioned, Fatman Terra claims that Terraform Labs’ dumping of more than $450 million worth of UST is what caused this crash. After making their final sale, UST crashed four days later, leaving LFG (Luna Foundation Guide) with 313 bitcoins.
According to Fatman, Terraform Labs has proven responsible for significantly weakening the curve pool through their rapid and extensive dumping. As a result of this, the UST depegged, and liquidity decreased. He said that TFL was behind this. Fatman also claimed that Do Kwon created the UST tokens with LUNA tokens after he had gathered billions of them, more like creating something out of nothing, which eventually granted them access to withdraw real money with the UST.
Do Kwon was recorded to have also done something like that with Degenbox, amassing a sum of $2.7 billion within a short period and removing liquidity from the LUNA and UST systems. Abracadabra Money developed Degenbox as a clever solution to the problem of accepting non-interest-bearing tokens through Stargate, an omni-chain liquidity protocol that enables cross-chain native asset swaps. With this, users will be able to transfer assets between blockchains without the need for a bridge, allowing them to leverage their yields.