What Kicked off the Death Spiral Behind the UST Depeg? 

Crypto analytics firm Nansen has conducted an on-chain analysis of the events that led to the UST crash.

 

Algorithmic stablecoins may be dead, or they may emerge in a different way.

 

But UST is definitely not making a comeback, and speculation abounds as to who caused its collapse. While Twitter is awash with rumors of a possible coordinated attack after the crash, on-chain analysis from analytics firm Nansen now provides the answer.

 

The firm identified a “small number of players” that took advantage of vulnerabilities early into the de-peg and accelerated the death spiral. Specifically, Nansen points out the following key dynamics leading to UST’s demise:

 

• UST funds were withdrawn from Anchor.
• These funds were then bridged to Ethereum via Wormhole.
• The wallets swapped the UST for other stables on Curve.
• After liquidity on Curve got drained, inefficiencies and arbitrage opportunities arose between decentralized and centralized exchanges, which did the rest for UST.

 

Nansen refutes the take that a single entity destabilized and collapsed UST. Instead, it comes to the following conclusion:

 

“The de-peg of UST could instead have resulted from the investment decisions of several well-funded entities, e.g. to abide by risk management constraints or alternatively to reduce UST allocations deposited into Anchor in the context of turbulent macroeconomic and market conditions.”

 

In particular, Nansen identified seven wallets that significantly influenced the UST’s de-peg. One of them belongs to Celsius, a centralized crypto staking provider.

 

According to Nansen, the seven wallets were withdrawn from Anchor on May 7, thus beginning the death spiral. The report does not delve into whether these wallets can or may have indeed coordinated their actions.

 

Celsius has recently come under fire for having potentially bad debt on its books. Wall Street reportedly shorted the company, and CEL tokens fell 80 percent from their April valuation.