Crypto Lender Celsius Partially Responsible for Terra Collapse, Says Nansen

Blockchain analytics firm Nansen linked the decoupling of Terra’s US dollar stablecoin to seven major crypto wallets, including a wallet linked to crypto lending platform Celsius, whose massive sales from UST sparked an exit rush.

UST maintained its peg to the US dollar through a complex network of arbitrageurs — traders buying and selling the token, and a linked, volatile crypto called LUNA to profit from price differentials between exchanges and DeFi liquidity pools.

This has all been working pretty well since UST’s launch in December 2020 – until earlier this month the market lost faith in the mechanism and sent the network into a death spiral that took UST to $0.02 and LUNA to well over $100 Fractions of a cent rushed.

nansens reportpublished on Friday, claims that seven arbitrageurs helped depegge UST by flooding shallow pools of liquidity on Curve with huge amounts of UST.

Liquidity providers on Curve, then DeFi’s largest protocol by total value, have an incentive to maintain the prices of tokens in liquidity pools by balancing their supplies with other, similarly priced tokens, but huge withdrawals and inflows can temporarily push the tokens’ price into the Sky Blue Sky by whack.

Using on-chain data, Nansen tracked seven power users who may have triggered the deprecation as they rushed to sell massive amounts of UST on Curve.

The seven wallets withdrew UST from Anchor — Terra’s lending product that offered yields of nearly 20% before its collapse — sent it to Ethereum via the multi-chain bridge Wormhole, and then traded it for others on Curve, the largest DeFi protocol stablecoins.

flood of sales

Immediately prior to the depeg, the seven wallets, including the one linked to Celsius, sent so much UST to Curve that the stablecoin’s price went wrong.

Luna Foundation Guard — a Terra-affiliated organization trying to defend UST’s peg — tried to counter this by withdrawing about 150 million UST from Curve on May 7 and adding other stablecoins back to the curve pool.

But shortly thereafter, five other addresses sold another flood of UST on Curve. LFG tried again to defend the tie by withdrawing UST189.6m. The war lasted until the morning of May 8th.

Between May 7 and 10, Nansen reported that the top 20 names stripped 2B UST of Anchor — about 11% of UST’s market cap at the time. The block reported On May 13, Celsius withdrew at least $500 million in funds from Anchor.

But LFG’s attempts to even out the Curve pool have fallen short given the relentless sales. UST inflows to centralized exchanges like Binance gained momentum on May 9. This peaked on May 10 when 165 million UST was sent to centralized exchanges.

The on-chain data refutes the widely held belief that a single “bad actor” crashed Terra’s US dollar stablecoin earlier this month.

“While many of these wallets likely acted independently and collectively, arbitrageurs affected a liquidity imbalance that ultimately led to the UST/LUNA death spiral,” Nansen said tweeted.

Even without Anchor, Celsius still offers interest rates of up to 9.32% on stablecoin deposits, as long as the interest is paid in CEL, the platform’s utility token. The token fell sharply as UST depegged, from around $2.17 to $0.63.

Do Kwon, the founder of Terra, has since relaunched LUNA on a new blockchain, Terra 2.0. The new chain does not feature an algorithmic stablecoin.

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