Terra Crash: Big investors dumped UST in time, small investors bought up

Jun 7, 2022

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Terra Crash: Big investors dumped UST in time, small investors bought up

Originally posted here.
By: guido

Overview

A month ago, the crypto drama surrounding Terra (LUNA) and the algorithmic stablecoin UST took its course. An analysis shows: Large investors reacted quickly to […]

The Post

A month ago, the crypto drama surrounding Terra (LUNA) and the algorithmic stablecoin UST took its course. An analysis shows: Large investors reacted quickly to the situation and pulled out capital early.

When the Terra (LUNA)-algorithmically linked stableoin UST slowly lost its 1:1 peg to the U.S. dollar from May 7 onward, investors took a mixed view of the situation. That’s the conclusion of a study  by crypto firm Jump Crypto. Retail investors with investments of less than $10,000 in the Terra ecosystem initially tended to re-buy UST when the stablecoin was trading for less than $1. They likely speculated on a re-settlement of the UST peg and resulting profits. Investors with $10,000 to $1 million, on the other hand, swiftly began to unwind their positions in UST. Large investors with more than $1 million in UST responded even more quickly and consistently by selling their UST.

Jump Crypto analyzed blockchain data for its analysis. It confirms the chain of evidence already presented by Nansen , which shows that it was not a single investor who started the death spiral for UST and LUNA. Nansen identified at least seven wallets that were withdrawing UST from the DeFi protocol Anchor on a large scale starting May 7. Anchor offered 20 percent interest on UST, making it the main reason for the rapid rise of the stablecoin, which had nearly $20 billion in market capitalization before the crash. UST was theoretically hedged by LUNA. However, the algorithm for generating or destroying Terra in parallel with the circulating amount of UST was too slow to take effect when massive amounts of capital flowed out of the ecosystem within a few hours and days.

According to Jump Crypto, even the subsequent purchases of UST by small investors were not enough to make up for the large capital that was withdrawn. What exactly happened to the $3.5 billion in Bitcoin (BTC) reserves released by the Luna Foundation Guard Foundation to prop up UST, even analysts don’t know yet. Rumors persist that the reserves made it possible for selected large investors at Terra to exit UST still halfway harmless and that the funds did not flow into the free market at all as assumed.

Conclusion: Risk management at LUNA and UST paid off.

Soberly remains to be noted: From May 7 to 9, a dangerous trend was evident with UST, but with levels still above 90 cents, investors were able to part with the stablecoin during the days with relatively manageable losses. Large investors seized this opportunity much more often than small investors who continued to trust in the concept of Terra and UST. This once again confirms the importance of targeted risk management in crypto trading.

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