Terra has been one of the most talked about cryptocurrencies in the crypto space for a while. In April, Bitcoin continued to make headlines for its buying spree. But it has been in the news lately for different reasons. The situation of the Terra ecosystem is getting worse day by day. Terra’s tokens (LUNA and UST) are down on their respective price charts.
A massive tweet thread was shared about the Luna event
The UST’s parsing process was launched a few days ago, and since then people have been putting forward their own theories as to what might have triggered the same thing. Onchain Wizard on Twitter was quite compelling his theoretical analysis of how someone made more than $800 million, $952 million by attacking the third-largest stablecoin. As we reported on Kriptokoin.com, Luna Foundation Guard (LFG) started accumulating BTC on March 3 and had a BTC position of over $ 1 billion until March 26. According to the Wizard, it was “part one” that made the trade [or attack] perfect.
The second episode finally took place on April 1st during the 4pool Frax announcement for UST. The same helped the attacker execute the strategy in a capital-efficient manner. The attacker allegedly initiated a position to establish a $1 billion OTC position on the UST. For this, he shrewdly played his next moves by initially borrowing 100,000 BTC. As a result, the stage was set to create a rally in altcoin and get paid on short Bitcoin positions. Then Onchain Wizard used the following statements:
5/8 of the liquidity was withdrawn, and then the attacker uses UST 350 million to drain Curve liquidity (and LFG withdraws another $100 million).
Did this event fuel the decline in UST?
In a way, this move encouraged USTs to deviate from $1. To get the situation back under control, LFG started selling Bitcoin to keep the stablecoin stable, causing downward pressure on Bitcoin while working on UST. Now, with Curve liquidity drained, the attacker used the remainder of his $1 billion OTC UST position ($650 million or so) to start draining on Binance. While the attacker was selling UST on Binance, LFG was selling BTC to stabilize UST. As a result, the chain clogged and CEX suspended the retraction of the UST. The same situation fueled his panic. As the price of both assets fell, liquidations began to rise.