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The company noted how small UST became the major victim of Terra’s collapse.
Following the unfortunate incident that rocked the Terra ecosystem and the entire crypto market last month, more information has emerged about what caused TerraUSD (UST) and LUNA to suffer a mind-boggling crash.
According to a recent report published by Jump Crypto, the cryptocurrency arm of Chicago-based Jump Trading, noted that UST crashed massively because large investors pulled out of their positions moments after the stablecoin lost its peg.
1/ Over the last few weeks, we at Jump Crypto have been studying the UST depegging and have three key observations. pic.twitter.com/kq48npoM8C
— jump_crypto (@jump_) June 3, 2022
Large UST Investors Excited While Small Ones Trooped In
While large UST investors were exiting their positions in the stablecoin, small traders were busy buying the dip with the hope that the cryptocurrency will rally again considering the heavy venture capitalists backing the project.
However, things did not happen that way, as the exit of large investors from Terra tokens left a massive vacuum that could not be filled by the entrance of small traders.
In the report written by Jump Crypto researchers Nihar Shah and Maher Latif, while large investors exited the Terra Anchor program as early as May 7, 2022, a day after UST lost its peg to the dollar, smaller investors trooped in a few days later.
These small investors hoped to capitalize on the whopping 20% ROI that the Terra team is offering. However, little did they know that the big players are closing their position in the cryptocurrency.
According to the report:
- “First, the episode was triggered by a combination of trades in the UST/3CRV pool during a seventy-five-minute window on Saturday, May 7.
- These trades involved TFL withdrawing UST liquidity, and two wallets putting large UST sell orders through the pool, upsetting the pool’s balance and depth.
- outflows from Anchor — particularly overnight on May 7 and on the morning and early afternoon of May 9 — put substantial pressure on the UST peg.
- Large depositors disproportionately drove the outflows. In fact, small depositors increased their exposure during this episode.
- the crypto market selloff on May 9 added additional pressure to UST, which may have finally pushed it off the peg by several hundred basis points.
- As a coda to the de-pegging, as the on-chain burn mechanism started printing LUNA to burn UST, the supply of LUNA skyrocketed and the price of LUNA collapsed.”
Jump Crypto’s Relationship With Terra
It is worth noting that Jump Crypto was heavily involved in the defunct Terra blockchain. Jump Crypto president Kanav Kariya is a member of Terra’s governing council and is listed on the TerraForm Labs website, suggesting how close Jump is to Terra.
Despite the relationship between Jump Crypto and TerraForm Labs, the report failed to highlight its role during the collapse of Terra ecosystem tokens.
Although Jump Crypto refused to discuss the role it played during the collapse of UST and LUNA, it is common knowledge that large Terra investors exited earlier than small traders did during the depth of the stablecoin.
Large VCs Massive Gain
As reported earlier, Panthera Capital disclosed that it made over 100x profit from Terra ecosystem tokens before the cryptocurrency crashed tremendously.
According to Joey Krug, Panthera’s fund’s co-chief investment officer, the company made over $170 million from its initial investment of $1.7 million.
Discussing how lucky Panthera Capital was with Terra tokens, Krug said:
“For the large portion which we sold over 2021 and part of 2022, it was a really simple risk management reason. It kept becoming a larger and larger part of the fund and so we had to de-risk it since you can’t really run a liquid hedge fund with one position being a super large portion of the fund.”
Similarly, Hack VC and CMCC Global were also lucky enough to close their positions on Terra tokens before things got out of hand.