Wallet That Helped Trigger UST Implosion Linked by Analysis Firm to Terra Developer

The popular decentralized stablecoin lost its dollar peg and fell to pennies in May. A South Korean blockchain analysis firm suggests the death spiral was sparked by transactions from a wallet linked to the lead Terra developer – though any motivation or rationale remains a mystery.

AccessTimeIconJun 17, 2022 at 4:05 p.m. UTC
Updated May 11, 2023 at 6:42 p.m. UTC
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UPDATE (June 30, 13:11 UTC): This story has been updated to reflect additional information received by CoinDesk indicating that the Uppsala report incorrectly identified the owner of the "terra13s" wallet. CoinDesk conducted an experiment to demonstrate that the "terra13s" wallet is a hot wallet of the OKX crypto exchange. A description of this experiment has been added to the story, along with a response from an Uppsala executive acknowledging that the results are clear.

A blockchain transaction that contributed to the collapse of Terra's UST stablecoin has been linked by a South Korean analysis firm to the ecosystem's chief developer, Terraform Labs.

CoinDesk Korea reported the findings by the blockchain analysis firm Uppsala Security earlier this week.

Uppsala, in its report, did not venture to provide a possible motive or rationale for the transaction, and officials with Terraform Labs did not reply to requests for comment.

But the findings have been shared with legal authorities in South Korea, where Terra enjoyed a huge following partly due to its Korean founder Do Kwon. The Seoul Southern District Prosecutors' Office is “tracking the flow of problematic wallets and coins” and is aware of the wallets flagged in the report, according to CoinDesk Korea.

"We compiled our report based on publicly available on-chain and online data, with the goal of providing evidence and leads to get closer to the truth that the impacted members of the community deserve to know,” Uppsala CEO Patrick Kim told CoinDesk in a WhatsApp message.

Who is behind 'Wallet A?'

Uppsala Security conducted an analysis of Terra wallets and flagged the Ethereum wallet “0x8d47f08ebc5554504742f547eb721a43d4947d0a” (referred to as "Wallet A") as one of the main addresses whose actions helped pushed prices of UST off of its intended $1 peg.

Blockchain data shows Wallet A swapped over 85 million UST for another dollar-linked stablecoin, USDC, on May 7 – just minutes after Terraform removed over 150 million UST from a liquidity pool on the lending platform Curve in a planned move.

Prices of UST fell under $1 almost immediately following these trades, which Uppsala said was a result of the lower liquidity on the Curve pool. Meanwhile, Wallet A’s newly acquired USDC was sent to Coinbase (COIN), one of the biggest crypto exchanges by trading volume.

"There's no telling what happened to the funds transferred to these Binance and Coinbase wallets, whether they're still there or have since been transferred somewhere else," Uppsala wrote in the report.

Schematic showing fund transfers by Terraform Labs-linked wallets to Coinbase and other exchange addresses. (Uppsala Security)
Schematic showing fund transfers by Terraform Labs-linked wallets to Coinbase and other exchange addresses. (Uppsala Security)

On further investigation by Uppsala, Wallet A’s transaction history showed it had received the 85 million UST from “terra1yl8l5dzz4jhnzzh6jxq6pdezd2z4qgmgrdt82k,” a wallet address on the Terra blockchain. The UST on the Terra blockchain was converted into UST on the Ethereum blockchain via Wormhole, a swap service for exchanging tokens from one chain to another.

The transactional history of that wallet showed it regularly sent huge amounts of UST to crypto exchange Binance. Uppsala showed that the wallet transacted with several other Terra wallets such as “terra1gr0xesnseevzt3h4nxr64sh5gk4dwrwgszx3nw” (referred to as terra1gr). This aroused suspicions at Uppsala – since terra1gr was one of the official wallets of the Luna Foundation Guard (LFG), which was set up by Kwon and other Terraform Labs officials to create a reserve for the "algorithmic" protocol behind UST.

According to Uppsala, apart from terra1gr, another Terra wallet "terra13s4gwzxxx6dyjcf5m7" (referred to as terra13s) exchanged funds recently with wallets on the Binance exchange that can be linked to Wallet A. Uppsala wrote that the terra13s wallet is now one of the official wallets of the LUNC DAO, a validator of Terra’s new Terra 2.0 blockchain.

However, a LUNC transaction made by CoinDesk was able to independently verify that the terra13s address is a hot wallet that belongs to the crypto exchange OKX. This was done by acquiring 25,000 LUNC on OKX and transferring the holdings out of OKX to another wallet address. The "sender address" was on a blockchain scanning tool Terra Finder revealed to be terra13s – proving the wallet is an OKX wallet.

Screenshot from Terra Finder blockchain explorer showing results of CoinDesk's experiment designed to prove that the "terra13s" wallet is a hot wallet of the OKX crypto exchange. (Terra Finder)
Screenshot from Terra Finder blockchain explorer showing results of CoinDesk's experiment designed to prove that the "terra13s" wallet is a hot wallet of the OKX crypto exchange. (Terra Finder)

CoinDesk pointed the finding out to Uppsala's Kim, who responded by stating, "Yes it's clear."

Investigation of all these wallets, their connections and their repeated transactions with each other led Uppsala to conclude that the wallets either had the same owner or were managed by a single entity.

Uppsala says the findings mean the actions of Terraform Labs may have ultimately resulted in UST’s implosion. “It means that Terraform Labs or LFG made a financial transaction that caused Terra to collapse on its own,” the team said in its report.

"Not only Wallet A but also the wallet connected to it were managed by Terraform Labs and related companies,” Uppsala’s Kim told CoinDesk in a WhatsApp message.


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Shaurya Malwa

Shaurya is the Deputy Managing Editor for the Data & Tokens team, focusing on decentralized finance, markets, on-chain data, and governance across all major and minor blockchains.

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