The fall of the fourth largest cryptocurrency began with an unannounced transfer of funds between trading pools on the night of May 7. It left the Curve pool with an imbalance on the side of Luna. This anomaly could have been set right as it’s not an entirely uncommon phenomenon.
But in this case, the situation turned from bad to worse, writing off one of the most infamous network collapses in cryptohistory. In an interviewDo Kwon admitted that he believes there was a mole inside this team and the crucial blow to the network came from an insider.
Within 13 minutes of the liquidity imbalance, some unknown traders sold off $200 million of UST. The trend continued through the next morning, which left the trading pool with a lingering imbalance and UST value wobbling from $1 to 99 cents. The UST had lost its peg to the dollar, although the margin was not significant.
Luna May Mayhem
“The sentiment on Twitter started to get worse… And then there started to be more people that were trading against the Curve pools,” Kwon recalls his morning after the big trade that exposed the liquidity crunch at the Terra Luna ecosystem.
In a knee-jerk reaction, Kwon, who goes by the Twitter handle @stablekwon, infamously tweeted, “Anon, you could listen to [Crypto Twitter] influencers about UST depegging for the 69th time. Or you could remember they’re all now poor, and go for a run instead.”
Kwon felt helpless at containing the attack as his executive team was up in the air flying to Singapore to attend a quarterly meeting at Terraform’s headquarters. Kwon admitted that the timing of the fund transfer and the absence of key Terra executives due to a scheduled official engagement was inside information.
“The only people that knew that were TFL employees…. So if you’re asking me whether there was a mole at Terraform Labs, that’s probably ‘yes,’ he said.
The interview deals with other issues central to the Terra Luna network. For example, UST-Luna’s algorithmic pegging, in contrast to stablecoins backed by hard cash and why people will hold their dollars in UST if there is nothing more to it, were the questions that led the network to bet big on unviable Anchor Savings Protocol that promised 20% annual returns.
It catapulted Terra to the top league but promising 20% returns while banks gave only 1% – 2% was unviable. There was only one solution for the network to keep it from going bust – a continuous flow of funds into Anchor through larger adoption.
“When the anonymous traders struck on May 7, Anchor’s runway was down to only 45 days before it would need another injection of cash. And because this was all playing out on a transparent blockchain, anyone could see the end of the road looming there on the horizon.”
When a Terra community member proposed a $1 billion top-up in April, Kwon coyly replied: “Sounds low,” Coinage pinpointed the final moments before the trigger for the biggest fall in crypto history was about to unfold.