On May 7, Terraform Labs withdrew 150 million UST from decentralized stablecoin exchange 3pool as part of a pre-planned public move to transfer the funds to another pool, the Chainalysis report said.
Terraform’s withdrawal reduced the liquidity in 3pool, and perhaps taking advantage of this vulnerability, an unidentified trader swapped 85 million UST for USDC 13 minutes later.
Another unidentified trader swapped 25 million UST four times over the next hour, draining a total of 100 million UST.
Terraform Labs also withdrew another 100 million UST to “rebalance” the ratio of UST to other stablecoins, but by then UST had slipped off its peg and panicked investors started withdrawing funds locked in Anchor Protocol, the report said.
Between May 7 and May 9, three unidentified traders swapped a total of US$480 million worth of USDT for UST to try and restore the peg, which triggered brief signs of a recovery.
Beginning on May 8, the Luna Foundation Guard (LFG), the non-profit behind the Terra ecosystem, began converting its billions of dollars worth of reserves to UST to help pump its price further to meet the peg, but its reserves were drained by May 10 and the peg was lost in a final plunge.
At the same time, 3pool’s liquidity was drying up and so investors started burning UST to mint Luna, which increased Luna’s supply to trillions and reduced its price to fractions of a dollar — the selloff continued until UST collapsed altogether.
While the collapse of Terra shook the faith of investors in the short term and is accelerating stablecoin regulation in the long term, “it’s unlikely to stop the growth of responsible innovation in the industry,” the report said.