Terra's UST Peg Was Artificial, Not Algorithmic?

Jump trading, as opposed to the algorithm, is said to have kept the TerraUSD (UST) peg at $1 by artificially supporting its price.

The native stablecoin of Terra, the TerraUSD (UST), was previously hailed as a technological marvel in the blockchain industry. It functioned like any other stablecoin tracking the price of the US dollar thanks to its distinctive dual token system, but without any real money stored in a reserve to back it. Recent information, however, paints a quite different picture.

Jump Trading Stabilizing the UST Peg?

A Securities and Exchange Commission (SEC) complaint was filed on Thursday alleging that TerraUSD (UST) was supported at least once in May 2021 not by TerraUSD's algorithm but rather by the intervention of a "third party" who agreed to purchase a large number of UST to reinstate the $1 peg.

The third party is Jump Trading, according to the most recent information. At the time this article was written, the SEC had not yet brought any legal action against Jump or claimed that company had broken any laws. In May 2022, TerraUSD, also known as its ticker UST, had a catastrophic catastrophe that cost investors tens of billions of dollars. Nevertheless, these SEC allegations concern a de-pegging that occurred a year earlier. The core of these accusations was that Terraform Laboratories used human traders to maintain its value rather than the software algorithm that the company promised to support the system.

The SEC was quoted as saying in its official complaint that Terraform, through Kwon, surreptitiously discussed arrangements with a third party, the "U.S. trading entity," to buy substantial amounts of UST in order to restore its value in May 2021, when the value of UST became "unpegged" from the U.S. dollar.

It further claimed that the defendants misled the public by claiming that UST's algorithm had successfully re-pegged UST to the dollar when UST's price rose again as a result of these attempts.

Luna as Compensation

However, Terrraform Labs is said to have vowed to make good on its repayment in the form of LUNA tokens in exchange for Jump's significant acquisition of more than 62 million UST to support the stablecoin. Even when the cryptocurrency was worth over $90 on the market, Terraform Labs would sell it to Jump for for $0.40, netting the company a profit of well about $1.25 billion. However, the SEC claims that in order to help sustain TerraUSD, Terraform further improved the conditions of the arrangement. The trading corporation would now regularly collect tokens for a meagre forty cent LUNC price (formerly LUNA).

Around a year later, the unstablecoin de-pegged and proceeded into a death spiral without Jump's intervention, destroying both UST and its sibling altcoin LUNA in the process, exposing the inefficiencies of the algorithm that supported UST.