Technology

The LUNA and TerraUSD Crisis: Hypothesis of a Typical Short Selling Attack


Bitcoin price continued to fall below $30,000 for the second time in the past week, causing the cryptocurrency market to continue to burn, investors becoming confused. One of the main causes of this price drop comes from Terraform Labs, specifically the collapse of UST and LUNA coins in the past few days. So what caused the collapse that caused Do Kwon to lose billions of dollars in the past.

One of the most common theories is that someone is behind a short-selling attack (selling something the investor doesn’t have. Profiting from the drop means that the short seller will ” temporarily borrow” the property and sell it later, hoping to make a profit because it can be bought back at a low price to pay off debt and enjoy the difference) George Soros style, targeting the Terra ecosystem, made more than 800 million USD in just a few days.

Illustrations

Likvidi CEO Ransu Salovaara explained “some people have chosen the UST algorithmic peg as a target for market manipulation and borrowed a lot of Bitcoin to do so, Soros style.”

The “attack” caught everyone’s attention. On May 10, US Treasury Secretary Janet Yellen warned of the risk that co-stable algorithms could create, during a meeting with the Banking Committee in the Senate.

Who is behind the attack on UST?

Ran NeuNer, the host of Crypto Trader at CNBC and a friend of Do Kwon, thinks that the market maker Citadel, may be the organization behind this chain of action. Charles Hoskinson, CEO of IOHK also said there are rumors that the Citadel is the “culprit”.

Ken Griffin, the billionaire founder of Citadel Securities known for his opposing views on the cryptocurrency industry, once compared the trillion-dollar market to “a work of abstract art.” However, the conspiracy theory that this financial institution was behind the attack is still just speculation.

Meanwhile, Larry Cermack, a cryptocurrency researcher, believes that more than $1 billion has been injected to prevent the “fire” of the Luna Foundation Guard from spreading. According to this expert, the amount of money is provided by Celsius, Jump and Alameda and a number of other venture capital funds.

How did the attack go?

According to the conspiracy theory of the crypto community, Blackrock and Citadel borrowed 100,000 Bitcoins from Gemini (shown in the loan book) and quietly exchanged this money to UST.

When the time was right (the Fed raised interest rates, causing investment money to flee from risky assets), the above organizations contacted Do Kwon, founder of Terraform Labs to “offer” Bitcoin. With the reason that they do not want to affect the market due to the large amount of Bitcoin, they suggest Do Kwon buy back the whole block at a favorable price and pay in UST.

The trap fell shortly after the creator of the Luna token approved the sale. A huge number of USTs were moved, causing a serious drop in stablecoin liquidity. Right at that point, Blackrock and Citadel sold all the Bitcoin and UST they had, creating a strong forced-selling push in both assets.

The problem is, the attacking organization that holds the Anchor exchange (holding a lot of LUNA keys) is a multi-level model (Ponzi) when paying actual profit margins up to 20%. A sharp slide will trigger a bank-run that exceeds Anchor’s tolerance. The pullbacks and selling pressure from there created a wave of LUNA sell-offs, pushing the market down even further.

Then, Blackrock and Citadel can buy back Bitcoin at a cheaper price to repay the loan and pocket the difference.

“Death” was foretold

Experts and observers of the cryptocurrency market say that the collapse of the UST has been predicted and is one of the most impactful “deaths” in the history of the cryptocurrency market.

Tree of Alpha, a white-hat hacker organization that discovered a critical vulnerability in the Coinbase API, said that LUNA’s collapse “is one of the largest Ponzi deaths to date.” in the cryptocurrency market”. Nic Carter from the investment fund Castle Ventures also agrees with the above statement.

This white hat hacker organization compares LUNA to Bitconnect’s Ponzi scheme, a $2.4 billion scam that caused a lot of notoriety for the crypto community.

Cointelegraph top 100 Lyn Alden once warned of potential problems with the UST coin. In his letter to investors, Alden expressed doubts about “Bitcoin flushing pressure” that would flood the market in the event that the UST loses its anchor rate. The fact that the market has played out over the past 48 hours shows that this fear is completely correct.

Vinh Ngo (Synthetic)

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