What happened to $UST and $LUNA?

A long thread that looks at what happened in the last 4 days

 

It all started with a massive sell-off on Curve. There was an $85 million UST-to-USDC swap that had the 3-pool slightly out of imbalance.

To put the Curve pool back into balance 50,000 $ETH was sold, and another 20,000 $ETH was sent to Binance.

 

Next, rumors about what happening is spreading quickly on Twitter.

This leads to a $2B withdrawal of $UST on Anchor.

Now the peg is moving between 0.987-0.995.

 

However, the first defense is successful. But the peg never fully recovered.

 

 

Before we deep dive into the rest of the story, let’s take a look at 4 factors that were in place to make sure that the attackers would succeed:

1. The attackers borrowed 100,000 $BTC from Gemini (which they short)
2. The attackers make a $1B $UST deal OTC
3. LFG (Luna Foundation Guard) is buying $BTC in March and April as a defense mechanism to protect the peg
4. The announcement of the switch from the 3-pool to the 4-pool

Okay, back to the story.

So LFG is removing $150M $UST from the 3-pool on Curve in preparations for the new 4-pool, then the attacker uses $350M of the $UST they’ve bought OTC to drain the Curve pool.

Next, there’s now no liquidity on Curve.

The peg is creeping down to 0.97-0.98.

Anchor deposits now really start to tank.

The rumors are spreading quickly.

I remember the Anchor deposits were $14B at the top, but you could literally watch the deposits go down by $10M per minute. It was full panic.

The peg is now sitting at $0.97, people are scared, and on top of that Nasdaq and the stock market are massively down, which leads to a lower $BTC price, lower altcoin price and the $LUNA price is tanking.

But the attack is not done.

The attackers now have $650M $UST left that they’re starting to sell on Binance.

What do you think happened?

A massive de-peg. LFG is stepping in and selling $BTC to buy $UST to try to restore the peg.

Now the death spiral is starting to get momentum.

How?

• Attackers dumping $UST
• LFG trying to restore the peg by buying $UST (selling $BTC)
• $BTC price goes down because of high sell pressure
• Increased panic because $UST de-pegs even more
• Anchor deposits go down because people want out –> people desperately try to sell $UST on exchanges for an increasingly lower price
• This creates a new sell pressure on $UST which makes it de-peg more
•  $LUNA price collapsing because of fear of how $LUNA / $UST works
• ($UST sell-off = more $LUNA in circulation = lower $LUNA price)
• Traders start to short $LUNA which further tanks the $LUNA-price, and also shorting $UST (possible on FTX)
• Then centralized exchanges started to ban $UST withdrawals, and now the panic is in full mode
• Eventually, LFG understands that this is a race they can’t win and lets the peg bleed. Yesterday $UST / $USDT was as low as $0.23, now it’s hovering around $0.5.

But the story doesn’t end here.

Through all of this, Do Kwon has been hinting at a rescue plan.