Conspiracy: a look at the UST and LUNA crash

By Patch | Things of note and other interesting stuff | 2 Jun 2022

I have to admit I love a good conspiracy as much, or probably more than the average person. However, I can not stand dumb and unfounded wild claims. Like a person who posts claiming vaccines are terrible and bad for the immune system, then goes on to cite a scientific study to support their claim. Only for the study to actually say the complete opposite. Actually true story. But none the less I thought it would make for some interesting detective work, on my end, to see if what has come to light so far, in this mess can paint any sort of picture.

The timeline

On May 7th, a large amount of UST was withdrawn from Anchor Protocol.

On May 8th the UST was sold off, about 285 million UST were sold on Binance and Curve.

On May 9th the Luna Foundation Guard, LFG, voted to help the UST.

On May 10th the UST dropped below $0.8.

May 11th, the death spiral officially starts. LUNA increases its mining rate from $293M to $1,200M to try and absorb the UST that is being sold.

May 12th, the TERRA Blockchain is halted.

May 13th, Do Kwon proposes a plan to "save" LUNA.

On May 16th the LFG reveals how they used the funds to try and help the UST.

May 17th, Do Kwon's altered plan for reviving LUNA. (1)

Anchor Protocol

The TERRA and UST flagship if you will. Where you could get up to 20% APY on your UST. You could actually borrow UST and deposit it and earn more than the interest on your loan. To say the least this was unsustainable. And it was said from all parties that everyone knew it was unsustainable and everyone knew the risks. And eventually, the rates would go down to "normal".

As a reference, Bernard Madoff was the man who ran the world's biggest Ponzi Scheme. Estimated at $64.8 billion promised an APY of 10%. Just to put the 20% on Anchor Protocol into perspective.

When we look at stablecoins this is the area where the big mess happened. If a stablecoin is backed with assets, one to one, it is stable. When it is not backed with assets, but it is promised to deliver 20% return, it’s a pyramid, -Kristalina Georgieva, the head of the International Monetary Fund (2)

Do Kwon, the man with the plan

Kwon founded Terraform Labs Korea on June 21, 2019. On Sept. 26, 2019, Ticket Monster founder Shin Hyun-sung joined the company as the second co-founder. However, he resigned on March 2, 2020, leaving Kwon to serve as the CEO of Terraform Labs.

On September 20, 2021, the SEC serves Mr. Kwon, this was in regards to TERRA´s Mirror Protocol. Kwon would later counter sue the SEC. Claiming that they have no jurisdiction over him as he is a South Korean citizen. This was later ruled in favor of the SEC, presumably. This appears to be the start of the troubles surrounding Do Kwon. (3)

South Korea is after Do Kwon for tax evasion and has issued a $78M fine. (4)

Person preemptively warns about how LUNA and UST can be attacked. This is met by, well Do Kwon's usual charm.

According to documents made public at South Korea’s supreme court registry office. Terraform Labs Korea voted to dissolve its Busan headquarters and Seoul branch at the general shareholders meeting on April 30. On May 4th the Headquarters were dissolved, and on May 6th the Seol Brance was dissolved. (5)

On May 4th Do Kwon gives an interview where he is asked about new crypto projects.

Sometime in early may Terraform Lab's entire legal team al quit, and all three walked out. There is no exact date for when this happened, and there has been no official statement from anyone on the legal team. Terraform Labs has only commented saying: “The past week has been challenging for Terraform Labs, and a small number of team members resigned in recent days,”. (6)

According to one of the four LFG advisors, Do Kwon has not been in contact with them after May 7th.

There were a lot of brainstorming and conversations [that day], but since then there hasn’t been much of a conversation, or at least one that I’ve been invited to, -Jonathan Caras, an LFG governing council adviser

The advisors were not in charge of the UST, but more in the role of “thought leaders”. They were currently working on the technical aspects of transitioning UST from an Algorithmic Stable Coin to a sem-backed one.

The truth is, I found my information [about this situation] on Twitter like everyone else, -Caras (7)

Somewhere after the 14th and leading up to the 17th, Do Kwon starts to refer to the event as an "attack" instead of calling it a depegging like in the first proposal. This is evident if you look at the initial proposal, where he uses depegging, and the latest proposal where he has switched out depegging to attack.

South Korean government revives the dormant Grim Reapers of Yeoui-do to investigate Terra on May 18th. They are a Financial and Securities Crime Joint Investigation Team. (8)

LKB & Partners is suing Do Kwon on behalf of investors who lost money on UST. They have also filed a motion to seize Do Kwon's property, this was done on May 18th. (9)

The Luna Foundation Guard

On May 6th, the LFG buys 37,863 Bitcoins for $1,5B. Putting their total number of Bitcoins in their possession at 80,394.

On May 9th the LFG transferred 52,189 $BTC to trade with a counterparty, net of an excess of 5,313 $BTC that they have returned, for an aggregate 1,515,689,462 $UST. 46876 Bitcoin, if they sold for 34k which was the high price of Bitcoin in the morning on the 9th. This would have given them $1,593 784,000. So this match adds up.

On May 10th the LFG sold 33,206 Bitcoin for an aggregate 1,164,018,521 $UST. A high price of 32k for Bitcoin on the 10th, gives a total of $1,062,592 000. Even with the low price of bitcoin at 30.4K this would put the sale at 1,009,462,400. The high price of UST was $0.9323 putting the value of the aggregated UST at $1,085,214,467. But in the early part of the 10th, the UST was as low as $0.765. If they had bought at this price it put the value of the UST at $890,474,169. Leaving a wiggle room of 110-170M.

The Seoul Metropolitan Police Agency asked multiple exchanges in the country to prevent LFG from withdrawing funds on May 23, 2022. (10)

Gemenie

A theory has been put forth that Gemenie was behind the attack on LUNA. By borrowing 100k Bitcoins to BlackRock and Citadel. They then would have swapped 25k of the Bitcoins to UST. And then dumped all of it. This would then cause both UST and Bitcoin to fall. And they would have bought back their coins and pocketed the profit. (11)

There are even those going as far as to include Do Kwon as the person that opened the backdoor for them if you will. Allowing them to trade the 25k UST of DEX, so as not to affect the price.

This alone would serve the same purpose as what comes next. If it were not for the fact that all involved parties have however denied these claims. And no proof has been put forth that substantiates the claims.

And as a fun tidbit, even if they did do this, it would have been the cause of the crash. Doing this is perfectly legal. Sure if I did it and was asked bout it, I probably would have denied it as well. Seeing how many people were affected by this whole thing. The odds are pretty high that one or two would come looking for them. At least one person so far has been arrested for coming to Do Kwon's house.

Tinfoil hat time

UST and LUNA was a pyramid scheme, that was doomed to fail. The only thing that made it live as long as it did was the amount of hype and people who invested in it. But eventually, the money will run out.

It all starts with Do Kwon getting rid of his partner, Ticket Monster founder Shin Hyun-sung. Leaving Do Kwon as the sole person in charge. As it is much easier to get your will through, without anyone with a conscience second-guessing you.

Things are slowly starting to unravel for Kwan as the SEC is starting to dig into his business dealings, and even the South Koreans are coming after him. Looking for a massive 78M in fines for tax evasion. He must think of something fast, something that will set him up for life. If he is caught with his hands in these other cookie jars.

It is at this time that "the plan" starts to take form. He reads about a vulnerability someone has found in the UST. He immediately dismissed this officially as nonsense and utter stupidity. He then starts to look into how this can be done in another way. If it can be done in one way, surely it can be done in another. And he eventually finds a way. He sets up a large number of wallets that stakes UST on the Ancor Protocol. Using the money his shady business dealings have earned him. As well as the money he has kept from the South Korean tax office.

Being so full of himself he even teases his plan in an interview days before he is going to execute it. As a dare to anyone clever enough to see what he is doing and to try to stop him.

When he finally starts to see the writing on the wall, the mighty pyramid he has built is starting to crumble. He then enacts his plan. He starts to clean house by closing don the branches and offices in South Korea. Allowing him to eliminate any incriminating evidence there, while having the excellent excuse of it getting lost in the move.

He then starts to enact the plan. He withdraws the UST from the wallets he previously staked on the Acour Protocol. And this is the first domino to fall.

It is around this time that the legal team is starting to suspect that not everything is as it should be. To be fair they have probably suspected it for some time. But not having anything other than a gut feeling. They finally find some concrete evidence and choose to confront Do Kwon. As they do not want to get caught up in this shitstorm. Do Kwon shows them the full extent of his plan and they in fact are more than involved, they have helped him put the plan in motion. He graciously lets them resign, after signing an airtight NDA.

After the initial meeting with the LFG, he then cuts off all communications with them as he has verified that their current plans will not be able to interfere with the plan he has put in motion. He has earlier made sure that they were ill-prepared for this situation, having their work focused on a completely different task, requiring another skill set.

And as he is taking it in and watching the entertainment he helped create. He sees people looking for answers, Wanting someone to blame. And he played into this by quickly adapting and changing from calling it a depegging, to now starting to refer to it as an attack.

He then starts to execute the final face of his plan. Becoming the "counterparty" that is hinted at by the LFG. So it then is he who gets to execute the trades for the LFG's vast amount of Bitcoins. This allows him to net an extra couple of millions that then gets moved out to the other wallets that were used for staking the UST on Achore Protocol. This ensures that he has enough funds safely tucked away even if all his "open" assets get frozen or seized by the authorities.

I hope that you have found this post to be entertaining, as this is all it was supposed to be. A little entertainment in these dark times. I have to say that I personally enjoyed both researching it and writing it. But this has by far been my most ambitious project to date. I have spent countless hours researching and reading articles and posts detailing the events that transpired. Not to mention the time to write it all together.

And I can honestly say I have not omitted anything in order to serve a narrative. All the events I have listed in the opening parts are as I found them and happen in the order I listed them. But of course, I might have missed some event. And if I have please inform me of what it is so I can include it. I have tried to index each of the posts and facts with the corresponding link in the resource section. So you will be able to find it easier.

I would really like to hear your thoughts on this, do you find it at all plausible or is it all poppycock? Please share your thoughts in the comments down below.

And if you would like to support me and the content I make, please consider following me, reading my other posts, or why not do both instead. You can find my other posts here and here.

I have also just started a new series of weekly posts, that will go live every Friday. You can catch the third step here: