Make Kitco Your Homepage

A 'short attack' caused UST de-peg, Luna's 97% price collapse, so who was responsible?

Kitco News

(Kitco News) - A short attack triggered Terra's LUNA to crash more than 97 percent over the past few days. This caused a corresponding fall in the price of UST, which fell to 2 cents early Thursday.

That's according to Ronald AngSiy is Senior VP for Intellabridge Technology, a defi company. AngSiy spoke with David Lin, anchor and producer for Kitco News.

UST, Terra's stable coin, is supposed to have a one-to-one peg with the U.S. dollar. In this ecosystem, a user can always swap a LUNA token for UST at the fixed price of $1, and vice versa. This swap can occur even if the market prices of LUNA and UST differ from $1.

This, in turn, creates an arbitrage opportunity. If UST's market price rises above $1, then LUNA users are incentivized to trade $1 of LUNA for a freshly minted UST token.

This process automatically destroys some LUNA from circulation. This, in turn, reduces LUNA's supply and increases its price. At the same time, the newly-minted UST tokens increase supply and reduce the price of UST, bringing it back down to $1.

Yet, alleged speculative attacks threatened this algorithm.  

"Through on-chain analysis we saw there were two entities that, in a 24-hour period, sold over $400 million of UST," said AngSiy. "… And that caused a cascading liquidation effect into the whole ecosystem and caused a crisis of faith in it."


Nothing can fix inflation now, 'economic stupidity' is underway by the Fed, Biden - Steve Hanke

AngSiy did not mince words: "This is clearly a short attack… The timing of this attack coincides with several things. One, the [yield protocol] for anchor protocol going from 20 to 18.5 percent, that was kind of a media headline. Another one is a lot of anchor competitors going online this summer… And three, the very specific timing of it, which happens to be right after Terra moves a lot of its UST off of curve."

Without making accusations, AngSiy pointed to Justin Sun's Tweets before the UST crash. Sun tweeted that he had "secret plans" for UST. However, AngSiy also said that nothing illegal happened, and that cryptocurrencies are open to short attacks due to being unregulated.

AngSiy drew an analogy to George Soros shorting the Bank of England in 1992: "[Soros] was just the catalyst that caused a massive selloff in British pounds from various currency traders… So in this [UST] scenario, they simply started the attack on Terra. And then from there, there were a lot of people who naturally sold off."

Do Kwon, the founder of Terraform Labs, previously bought Bitcoin to help stabilize the UST ecosystem.

However, according to AngSiy, the recent UST and LUNA crash is also related to Bitcoin's recent price collapse.

"The massive selloff in Bitcoin was part of a way to stabilize UST, as a way to force Terra to use their Bitcoin reserves. And once Terra loaned out its Bitcoin to an entity to use to buy UST, that entity took all the Bitcoin it received from the loan and shorted the entire amount," he said.

Reflecting on the lessons for crypto investors, AngSiy said, "[To] see [LUNA and UST] taken down in two days, right, it just has to make you step back and reevaluate what's actually safe in cryptocurrency. Is the whole thing a giant startup with an incredible risk profile, normally reserved to venture capitalists?"

To find out AngSiy's predictions for the future of stablecoins, and which cryptos he is buying, watch the above video.

Follow David Lin on Twitter: @davidlin_TV

Follow Kitco News on Twitter: @KitcoNewsNOW

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.