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Celsius Network Partly Responsible for Terra Meltdown, Says Nansen

2 mins
Updated by Ryan Boltman
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In Brief

  • Analytics firm Nansen shows that the actions of multiple large holders led to the USDTerra collapse.
  • The firm says one of two wallets that drew $420M from the Anchor protocol belonged to Celsius.
  • Celsius has declined to comment on the findings.
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Blockchain analytics firm Nansen says that multiple parties were involved in the sell-off that led to a “death spiral” for TerraUSD.

Research firm Nansen confirms that multiple entities were involved in the recent de-pegging of TerraUSD, including DeFi lender Celsius Network. “We refute the popular narrative of one ‘attacker’ or ‘hacker’ working to destabilize UST,” the analytics firm said in a research note yesterday.

Unlike stablecoins backed by reserves of fiat currency such as Tether (USDT), and Circle (USDC), USDTerra relied on a sister coin, Luna, to maintain its peg algorithmically. Investors were offered a 20% annual yield for staking UST in the Anchor Protocol, a crypto bank of sorts. When the algorithm failed earlier this month, the prices of UST and LUNA crashed, wiping over $40B from the crypto market and putting pressure on other cryptocurrencies.

Evidence points to ‘well-funded entities,’ Nansen says

“The de-peg of UST could…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 turbulent conditions,“ said Nansen. Nansen added that such investment decisions may or may not be the result of malicious activity.

Some users exploited arbitrage options caused by the difference in prices of UST on DeFi lending app Curve and on centralized exchanges like Coinbase.

The Luna Foundation Guard (LFG), a reserve of funds designed to help UST keep its peg, withdrew $150M from Curve Finance. Multiple users deposited $105M worth of UST, and in response, LFG withdrew more funds. The back-and-forth continued until May 8, 2022. Thereafter, multiple large holders started withdrawing UST from Anchor Protocol and converting it to Ethereum. Once on Ethereum, the users began swapping out UST for other stablecoins using Curve Finance, taking advantage of differences in price on centralized exchanges, decentralized exchanges, and curve, with multiple rounds of buying and selling.

One of two wallets that withdrew $420M from Anchor is linked to Celsius, Nansen says, and was involved in converting funds to Ethereum using the Wormhole Bridge. Celsius was also linked to the activity of another wallet which also played a part in the de-pegging of Terra.

Celsius keeps mum on research findings

Celsius has so far declined to comment, apart from this tweet, posted on May 11: “As part of our responsibility to serve our community, @Celsius Network implemented and abides by robust risk management frameworks to ensure the safety and security of assets on our platform. All user funds are safe. We continue to be open for business as usual.”

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...
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