Mystery of Terra Collapse Deepens With Possible FTX Role Raised
The latest twist in the downfall of crypto maven Sam Bankman-Fried is prompting a reexamination of the implosion of the Terra algorithmic stablecoin ecosystem that wiped out around $40 billion in market value earlier this year.
US prosecutors are said to be investigating Bankman-Fried, the founder of collapsed crypto exchange FTX and its sister trading platform Alameda Research, regarding his possible involvement in orchestrating the death spiral of TerraUSD (UST) and its affiliated token Luna, according to a report in the New York Times citing people with knowledge of the matter. Separately, Bloomberg News reported that FTX's new CEO and bankruptcy lawyers met this week with Manhattan federal prosecutors investigating the failed exchange.
The Terra ecosystem was helmed by the symbiotic relationship between the two tokens that was managed by lines of automated code to govern circulation. If the price of UST went above $1, traders were incentivized to swap Luna for UST at a profit, and vice versa, thus in theory keeping UST's circulation in check.
But when investors lost confidence in one, the other went down too, and so they were locked in a so-called death spiral that saw their value plummet to near zero in a week's time in May.
Whose actions helped precipitate the decline has remained in question. There were two sides to this trade. The first is the side that traders can see on-chain, where wallet addresses were visibly swapping UST for other tokens, and that caused the market to start to panic. The other is on centralized exchanges' order books, where the “who's who” is harder to track because user information is not disclosed by platforms.
“People are often seeing half the picture,” Nikita Fadeev, partner at London-based
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