Jump Crypto Reveals 3 Critical Reasons for the Terra 1.0 Collapse

Jump Crypto, a division of the Jump Trading Group, revealed the incidents that led to the collapse of Terraform Lab’s native token Terra (LUNA) — now LUNC — and its algorithmic stablecoin Terra USD (UST) — now USTC.

Jump highlighted three critical points as the cause of the collapse. The first was that a 75-minute window on Saturday, May 7, showed a combination of trades in the UST/3CRV pool. The trades include Terraform Lab withdrawing UST liquidity, with two other wallets placing large UST sell orders through the pool. These actions, they said, upset the pool’s balance and depth.

The second was the major role Anchor Protocol played. Jump Crypto said Anchor made substantial outflows overnight on May 7, and on the morning and early afternoon of May 9, all of which put great pressure on the UST peg.

The third was the general panic sell-off that happened on May 9.

Another interesting fact was that while several large investors with over $1 million UST liquidated their holdings, retail investors with less than 10k in UST increased their exposure between May 6 to May 9.  However, the exposure from small investors was insufficient to counteract the outflow.

The statement read:

…their total position size was an order-of-magnitude smaller than that of mid-sized and large depositors.

Given the systematic attacks on UST, the on-chain burn mechanism began printing LUNA to burn UST. This action pushed the supply of LUNA to unimaginable heights, leading to the ultimate collapse in the price of LUNA.

LUNA lost more than a thousandfold of its value. It dropped from $119 to $0.00000012, while UST lost its $1 peg. Reports have it that investors lost over $60 billion to this crash.