Terra’s UST De-Pegging a ‘Brilliant’ Soros-Style Attack, Claims Analyst

Terra’s (LUNA) UST de-pegging from the U.S. Dollar was part of a ‘brilliant’ Soros-style stratagem that netted its perpetrator close to a billion dollars. So claims market analyst the Onchain Wizard, who delved into the anatomy of the attack to uncover its secrets.

Onchain Wizard laid out his argument for how the attack was perpetrated in a Twitter thread on May 10. The Wizard was ultimately so impressed by the “brilliant” strategy of the Luna attacker he compared it to “Black Wednesday” when George Soros bet against the Bank of England and won.

As the Wizard sees it, the problems for Luna began in March when the Luna Foundation Guard (LFG) began purchasing BTC to help back $UST. By Mar. 26, LFG had a $1B BTC position. 

The next plank of the attack was put in place with the creation of the 4pool – a liquidity pool consisting of Luna $UST, Frax $FRAX, USD Coin $USDC, and Tether $USDT. The 4pool was designed to replace the existing liquidity pool known as the 3pool. Transferring liquidity between the two pools tied up liquidity making it easier to perpetrate the scheme.

Between Mar. 27 and Apr. 11, Luna buys another 15,000 BTC at an average price of $42,000. At some point, the attacker borrows 100K BTC to start their short position.

“So you have a ~$4bn short position built. Over the same time, the attacker builds a $1bn OTC position in $UST,” says Onchain Wizard. “The stage is now set to create a run on the bank and get paid on your BTC short.”

Liquidity from the existing UST 3pool is pulled for the 4pool UST-FRAX-USDC-USDT and the attacker pulls $350M of UST from 3pool. This begins the de-pegging process. When Luna begins selling BTC to defend its peg it causes downward price pressure on bitcoin. The attacker then uses their remaining $650M of UST to offload on Binance.

Some assumptions at work

Onchain Wizard admits that the thesis does necessitate some degree of speculation, but is certain that a lot of money was made in the process, and figuring out how is a necessary first of investigation. As the Wizard sees it, the necessary ingredients were the transition of 3pool to 4pool (low liquidity) and BTC (high liquidity).

“BTC was the perfect playground for the trade, as the liquidity was there to pull it off. While having LFG involved in BTC, and foreseeing they would sell to keep the peg (and prevent LUNA from dying) was the kicker.

“Lastly, the liquidity being low on 3pool in advance of 4pool allowed the attacker to drain it with only $350M, causing the broader panic in both BTC and $UST.”
With Luna and UST reeling, all eyes are now on the Luna Foundation and its CEO Do Kwon to see what happens next.

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