Revealed: Terra’s UST Peg was Maintained Artificially, Not by Algorithm.
Terra’s native stablecoin, TerraUSD (UST), was once hailed as an engineering marvel in blockchain technology. It was unique because it used a dual token system. It tracked the U.S. Dollar’s price, but there wasn’t any cash to back it. Recent revelations show a completely different story.
Jump Trading Propping UST Peng?
According to a Securities and Exchange Commission complaint filed on Thursday, TerraUSD was supported at least once in May 2021 by an intervention of a “third-party” that committed to buying large amounts of UST to restore $1.
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Jump Trading is the third party according to the most recent information. Jump Trading was the third party. Jump has not been charged by the SEC. TerraUSD, also known by its ticker “UST”, suffered a catastrophic failure in May 2022 that resulted in investors losing tens to billions of dollars. These claims by the SEC refer to a de-pegging which took place one year prior. These allegations center on the assertion that Terraform Labs used human traders to support its value, rather than the software algorithm that claimed to back it.
The SEC was quoted in its official complaint as saying:
Terraform, through Kwon discussed secret plans with a third party, the U.S.’ in May 2021 when the value of UST was ‘unpegged” from the U.S. Dollar. trading firm,’ to purchase large amounts of UST in order to restore its value.
It also claimed that when UST’s prices moved back up due to these attempts, defendants falsely and misleadingly stated to the public that UST had effectively re-pegged UST at the dollar.
Luna As Compensation
Terrraform labs, however, allegedly promised to pay in LUNA tokens to Jump for Jump’s huge purchase of more than 62,000,000 UST to support the stablecoin. Terraform Labs sold the cryptocurrency to Jump for $0.40 even though it was trading at more than $90 on crypto markets. This resulted in a profit close to $1.28 billion. According to the SEC, Terraform Labs negotiated a more favorable agreement to help TerraUSD continue to thrive. The trading company would now routinely collect tokens at a LUNC price (previously LUNA of forty cents).
One year later, the inefficiency of the algorithm underpinning UST was apparent when, in the absence Jump intervention, the stablecoin depegged and began a spiral of destruction, destroying both UST (and its sister altcoin LUNA) in the process.
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