Nansen Theorizes That Seven Wallets Within Terra Triggered UST Depeg as South Korea Prosecutors Investigate Terra

Terra’s collapse was the biggest headline in the cryptocurrency sector last month. The creation from Terraform Labs came to its knees following massive erosion of the market value of its native assets. An ecosystem valued at roughly $40 billion simply crashed!

In response to this fallout, authorities worldwide have raised concerns about the stability of stablecoin projects, none so more than South Korea, the home country to Terraform Labs’ founder Do Kwon. The East Asian nation has initiated inquiries, seeking to understand the circumstances around the said breakdown.

Terraform Labs grapples with domestic legal inquiries into the UST debacle

As per a report published by Korean news outlet JTBC, Seoul’s Southern District Prosecutor’s Office sent out subpoenas and initiated a probe into Terraform Labs employees. Led by the Joint Financial and Securities Crime Investigation team, the agency is looking to conduct a “full-scale investigation.” The outlet revealed that, according to one company employee familiar with the matter, the investigators are interviewing TFL employees from as far back as the early days of Terra’s development.

Deliberate ignorance?

It’s now coming out that Do Kwon might have deliberately ignored warnings that the algorithmic design that Terra has adopted for TerraUSD wasn’t infallible and ran a risk of losing its peg. One employee explained that there was a caution to the CEO at launch that UST could collapse at any time, but he went ahead with it anyway.

Further, the investigators are snooping to determine whether TFL traveled all the right roads in listing TerraUSD and the network’s native LUNC, at the time, LUNA token. The probe also explores whether TFL employees possibly engaged in a price manipulation scheme resulting in Terra’s fall.

Regulatory action

At the moment, the Korean government is under pressure to protect investors in one of the most active crypto economies in the world. The Political Affairs Committee of the National Assembly has reportedly summoned Kwon with the committee’s representative Yoon Chang-Hyeon seeking answers to questions on the continued crypto investor losses in the country.

This necessity to act about Terra comes as South Korean investors were some of the biggest losers following the $40 billion cataclysmic implosion. Venture capital firm Hashed lost as much as $3.5 billion to add to the several young investors who’ve ventured into the nascent space of cryptocurrencies.

In addition to the probe into TFL employees, the government has since established a financial regulatory panel and is investigating TFL’s tax compliance via the IRS. Terra founder and his firm are also facing significant legal action from investors with class-action lawsuits in the pipeline.

Thus far, JTBC established that a total of 76 victims had filed complaints with the Prosecutor’s Office, with losses summing up to 6.7 billion won.

Going ahead, the road back to a good relationship between crypto and the government could become significantly arduous, even with the recently elected pro-crypto president Yoon Suk-yeol.

Over in the US, Terra’s fall has provided a point of argument against cryptocurrencies to political figures and investors who disapprove of this asset class. However, most calls have been on regulation (of stablecoins and crypto) rather than an outright ban on this space. The Treasury Department, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, , and are some government agencies pushing for “highly-appropriate” regulation of the crypto scene.

UST depeg was triggered by the activity of seven wallets within Terra, Nansen report finds

Elsewhere, a report compiled by blockchain analytics platform Nansen has advanced that seven well-funded wallets likely sparked the UST crash. The report detailed that these wallets made UST withdrawals from lending protocol Anchor and converted the same to Ethereum via Wormhole. These huge UST sums were then swapped to other stablecoins.

The Nansen team added that the wallet owners made the most of the arbitraging inefficiencies between Curve – the liquidity pool holding the other stablecoins- and decentralized as well as centralized exchanges. Binance was the exchange of choice among centralized exchanges. The analytics firm concluded that, based on its study, it ruled out the possibility of a single attacker causing the debug.