Terra Luna: How These 7 Wallets Brought the Ecosystem to Its Knees

Many crypto investors are wondering whether they should invest in the new Terra Luna, dubbed Luna 2.0. The gigantic collapse of Terra Luna left many wounded on the crypto battlefield, some lost their entire life savings in the South Korean project.

Reviving the project via a hard fork was questioned by key figures in the industry such as the Binance CEO, Changpeng Zhao.

Before diving into Luna 2.0, an investigation was carried out by Nansen, a blockchain analytics platform. Nansen investigated what really happened to Terra Luna and identified just 7 Ethereum wallets that may have triggered the collapse of the Terra Luna network.

The 7 Wallets

Rather than 'an attack' on the network, Nansen's findings suggest 7 wallets capitalized over arbitraged vulnerabilities in the network. The 7 ETH wallets that may have lead to the collapse of Terra Luna according to Nansen are:

0x8d47f08ebc5554504742f547eb721a43d4947d0a (EIP 1559 User)
0x4b5e60cb1cd6c5e67af5e6cf63229d1614bb781c (Celsius)
0x1df8ea15bb725e110118f031e8e71b91abaa2a06 (hs0327.eth)
0xeb5425e650b04e49e5e8b62fbf1c3f60df01f232 (Heavy Dex Trader)
0x41339d9825963515e5705df8d3b0ea98105ebb1c (Smart LP: 0x413)
0x68963dc7c28a36fcacb0b39ac2d807b0329b9c69 (Token Millionaire / Heavy Dex Trader)
0x9f705ff1da72ed334f0e80f90aae5644f5cd7784 (Token Millionaire)

Additionally, Nansen investigated social media reports that UST-3pool on Curve, a liquidity pool that allowed swapping UST for USDC / DAI / USDT was drained out of liquidity by a single user, which was the main cause for the de-pegging.

Nansen discovered 2 major events in the Curve protocol on Ethereum Ethereum Ethereum is an open source, blockchain-based distributed computing platform and operating system featuring smart contract functionality. Created in 2014, Ethereum now stands as the second largest cryptocurrency by market cap at the time of writing.As a decentralized cryptocurrency network and software platform, Ethereum represents the most prominent altcoin. Ethereum also enables the creation Distributed Applications, or dapps. Understanding EthereumEthereum boasts its own programming language, Ethereum is an open source, blockchain-based distributed computing platform and operating system featuring smart contract functionality. Created in 2014, Ethereum now stands as the second largest cryptocurrency by market cap at the time of writing.As a decentralized cryptocurrency network and software platform, Ethereum represents the most prominent altcoin. Ethereum also enables the creation Distributed Applications, or dapps. Understanding EthereumEthereum boasts its own programming language, Read this Term, March 2022 and between 7 May and 11 May. The focus was on UST inflows as the de-pegging has allegedly occurred due to abnormally high activity in swapping UST to other stablecoins.

In March 2022, multiple inflows over 60 million UST were seen but had no significant impact on UST peg to the US Dollar.

Luna Foundation Guard Greatest Battle

On 7 May, 21:44 UTC, one of the Luna Foundation Guard (LFG) wallets withdrew approximately 150 million UST from Curve. It was met by 85 million UST inflows from a single address, 0x8d47f08ebc5554504742f547eb721a43d4947d0a (EIP 1559 User).

The address was created prior to the 85 million UST transaction and only used in Curve for swapping UST for USDC as well as for the receipt of and subsequent transfer of the USDC to the exchange, Coinbase.

4 wallets (one is related to Celsius) followed the address above with inflows of approximately 150 million UST to Curve. LFG wallets countered the transactions with withdrawals of 189.6 million UST. The battle between inflows and outflows continued until the morning of 8 May.

The top 18 wallets by net flows over 7 May and 8 May were responsible for 77% of UST inflows to Curve. Nansen marked these wallets:

source: nansen

These 4 addresses are behind the largest inflows to Curve using 1inch DEX Aggregator:

0x6b3d1a37b5c01901341f01f4975d31bc5e6c3d81 (masknft.eth)
0x4f5f3d3f8eb2896e0e865cde934fe5103f979771 (Heavy Dex Trader, NFT Collector)
0x1df8ea15bb725e110118f031e8e71b91abaa2a06 (hs0327.eth)
0x66b870ddf78c975af5cd8edc6de25eca81791de1 (Oapital, also interacted with Curve directly)

Later on, address 0x99fd1378ca799ed6772fe7bcdc9b30b389518962, which is associated with Hodlnaut joined the above addresses in what Nansen refers to as 'early followers'.

The Wormhole Bridge

The investigation then continued to the interaction between Terra Luna and Wormhole bridge. Between 7 May to 10 May, approximately 347 million UST were withdrawn from Anchor in 8 transactions.

The top 20 wallets withdrew 2 billion UST from anchor via 5,051 transactions. The addresses that were flagged by Nansen commenced their withdrawal in April 2022.

Address terra1vca36gazapns38mvupa2pfjz0g39ekdgk0wnea (ETH address 0x41339d9825963515e5705df8d3b0ea98105ebb1c, labeled as Smart LP: 0x413) made the most UST withdrawals from Anchor between 1 April and 6 May.

source: nansen

The following 2 addresses had the greatest impact on the UST de-pegging event:

Terra: terra1yl8l5dzz4jhnzzh6jxq6pdezd2z4qgmgrdt82k
ETH: 0x8d47f08ebc5554504742f547eb721a43d4947d0a
The Curve UST inflow 'initiator'.

Terra: terra195wtjmpjxhp336mclqfsyk2plvs8mw3lhsc5nc
ETH: 0x4b5e60cb1cd6c5e67af5e6cf63229d1614bb781
Celsius.

The above wallets had the greatest volume from the Anchor Protocol during UST de-pegging from USD between 7 May to 10 May, which was approximately 420 million UST in 15 transactions.

UST to Ethereum

Crossing the above wallets with bridging UST from Terra ecosystem to Ethereum, the two addresses above were the top addresses that bridged using the Wormhole.

Nansen discovered an uptick in UST tokens in Wormhole, which began on 5 May.

source: nansen

Moreover, data revealed significant activity in Terra to Ethereum during the de-peg. Large amounts of UST were bridged to Ethereum, which can be seen in the chart below:

source: nansen

Between 5 May to 8 May, 984 unique addresses were very active. The top 10 addresses accounted for 57% of UST transfers. Nansen suggests that rather than a single 'attacker' on the network, 7 wallets may have strived to capitalize on Curve's liquidity, which was insufficient.

source: nansen

Significant selling pressure was placed on centralized exchanges, such as Binance and FTX. Below is an example of how Oapital may have profited while arbitraging in UST.

Most of the arbitraging took place on centralized exchanges (CEX).

To conclude, 7 wallets swapped substantial amounts of UST for other stablecoins on Curve on 7 May. The 7 wallets withdrew large amounts of UST from the Anchor Protocol on 7 May and bridged UST to ETH via Wormhole.

6 out of the 7 wallets interacted with centralized exchanges to send UST or USDC that was swapped from Curve. Further, Nansen's findings may rule out a single attacker or hacker that destroyed the ecosystem. Although, 7 wallets may have capitalized over the low liquidity of Curve (pools) that were meant to defend UST peg to other stablecoins.

As UST was losing its peg, some of these wallets may have noted the price differentials between Curve, DEX and CEX by buying and selling between CEX and DEX.

There is no evidence that Do Kwon, the Founder and CEO of Terra Luna is related to the above.

Celsius did not reply to the findings of Nansen. In the event a reply is received it will be updated here.

Luna 2.0 Rough Opening

Following the collapse of Terra Luna, the proposal for a hard fork has been accepted. The new cryptocurrency (due to the fork) is being listed in the top exchanges. Binance listed Terra 2.0 on 31 May at 05:30 UTC in the Innovation Zone due to the increased volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term.

The prior version of Luna will remain operational under the name 'Luna Classic' or LUNC for short. Binance will distribute the new Luna in the following manner:

Pre-Attack 1 aUST = 0.01827712143 LUNA
Pre-Attack 1 LUNC = 1.034735071 LUNA
Post-Attack 1 USTC = 0.02354800084 LUNA
Post-Attack 1 LUNC = 0.000015307927 LUNA

source: Binance

Some opposed the hard fork including the Binance CEO. According to CoinMarketCap (which is owned by Binance), the new Terra or Luna 2.0 daily high was $19.53. The coin was immediately sold, taking the price down to $5.

A bug in the Anchor Protocol allowed a user in the Terra ecosystem to walk away with approximately $800,000, which may have contributed to the new Luna's sell-off.

The price oracle of LUNC rose to $5, which was the wrong price. Noticing the bug, the user deposited 20,000,000 Lido Bonded Luna tokens (approx.), which were valued at $100,000,000 due to the bug.

The user then took a loan of 40,000,000 UST and withdrew with a profit of $800,000.

source: terra.money

Other users who noticed the profit was made due to the bug then attempted to do the same, but they were rejected by the system. The developers may have immediately noticed the bug and implemented a fix.

Can Luna 2.0 Succeed?

Prior to the launch of the new Terra, projects within the Terra Luna ecosystem were reached out by other projects. Ryan Wyatt, the CEO of Polygon announced on Twitter that he will assist Terra's projects with migrating to the Polygon network.

"We have put together a multi-million dollar fund to provide relief to Terra developers to help them stay on their feet and migrate," wrote Wyatt on Twitter.

source: twitter

Wyatt has disclosed that between 50 to 60 projects on the Terra ecosystem reached out to him for assistance in migrating to Polygon. Moreover, he added that the fund will be financed using the $450 million that Polygon has raised and a $100 million ecosystem fund. Wyatt assured that more capital will be added if required.

If more projects will desert the Terra Luna ecosystem, Luna 2.0 may struggle to regain investors' confidence. Despite the high supply in Luna Classic (over 6 trillion due to the mint), more attention may be placed on the token in the short term, especially by bargain hunters.

The immediate selling of Luna 2.0 on its first day may not be a valid indication. Also, many investors dumped the tokens that they received from presales at the launch, similar to ApeCoin and many other tokens.

In fact, Terra Luna 2.0 has a market cap of approximately $2 billion with a daily volume that exceeds $500,000,000 (approx.).

The main indicator of a successful 'revival' of the ecosystem is attracting new and big projects to Luna 2.0 while limiting the mass desertion of existing projects.

Time will tell.