TerraUSD Slips From $1 as Curve Trades Test Algorithmic Peg

TerraUSD (UST) began to move away from its intended $1 value on May 7, 2022, after a concentrated sequence of liquidity withdrawals and swaps in Curve’s Ethereum-based wormhole-UST/3CRV pool. The development mattered because UST was designed to trade as a stable dollar unit without conventional dollar reserves: confidence depended on arbitrage through Terra’s LUNA mint-and-burn mechanism and on deep markets where holders could exit near par.

The blockchain record fixes one pivotal trade with unusual precision. At 21:57:24 UTC, an Ethereum address sent 85,001,010 wormhole UST into the Curve pool and received 84,509,386.836199 USDC. Etherscan records the transaction as successful in block 14,732,287. The record proves the size, assets, venue, timestamp and executing address; it does not establish who controlled that address or why the trade was made.

A thinner pool meets concentrated selling

A transaction-level reconstruction published by Jump Crypto on June 2, 2022, placed the swap inside a 75-minute sequence. Its analysis attributed a withdrawal of 150 million UST in liquidity at 21:44 UTC to Terraform Labs, followed by the 85 million UST-for-USDC swap at 21:57. Another address then exchanged 75 million UST across three 25 million transactions from 22:32 through 22:38, and Jump attributed a further 100 million UST liquidity withdrawal at 22:52 to Terraform Labs.

Those actions did not all push the pool in the same mechanical direction. Withdrawing UST liquidity could improve the pool’s token balance while making the market shallower; selling UST for other stablecoins increased its imbalance. Together, reduced depth and concentrated selling made the quoted exchange rate more sensitive to additional orders.

Jump’s price reconstruction used the Binance UST/USDT pair, described as the most liquid centralized UST market during May 7–9, and the Curve wormhole-UST/3CRV pool, described as the leading decentralized venue. On its minute-level GMT series, UST began deviating around 15:00 on May 7, moved as far as 130 basis points from $1, and ended May 7 about 60 basis points away. These are venue-specific trading observations, not proof that every UST holder could redeem at the same rate, and centralized Binance order flow cannot be independently reconstructed from public blockchain data.

Why the first break mattered

UST’s stabilizing design offered an on-chain exchange between one UST and approximately $1 worth of LUNA. In theory, a discounted UST created an arbitrage opportunity: buy UST below $1, exchange it through Terra’s market mechanism for $1 of LUNA, and reduce UST supply. That logic depended on the market’s willingness to hold the newly created LUNA and on sufficient liquidity and transaction capacity for arbitrage to function.

Concentration added another vulnerability. Jump estimated that, just before May 7, UST deposited in the Anchor lending protocol represented nearly 75% of UST’s market capitalization. Anchor therefore linked the stablecoin’s demand to a single high-yield application. A visible disturbance in Curve could affect confidence among Anchor depositors, while withdrawals from Anchor could send more UST toward external markets.

As of the end of May 7, the verified record supported a narrower conclusion than hindsight permits: UST had suffered a measurable but limited break from its target amid unusually large public transactions. The identities behind the major unaffiliated wallets, their intent and the durability of the peg were unresolved.

Later context

Research published after May 7 established that the disturbance was the opening phase of a broader run. The Federal Reserve Bank of Richmond later reported that UST fell as low as $0.985 on May 8 before briefly returning to $0.995 on Binance, while Jump found that larger Anchor outflows and a broader risk-off move pushed UST materially farther from $1 on May 9. Those later outcomes explain the significance of May 7 but were not knowable at the close of that date.