Crypto: Large investors exited Terra during its collapse

Yahoo Finance crypto reporter David Hollerith discusses a new report on how many investors exited Terra during the platform's collapse.

Video Transcript

BRIAN CHEUNG: Well, the autopsy on that Luna UST project still underway, and a new report from Terra backer Jump Crypto adding some color to the stablecoin's collapse. Here with more is Yahoo Finance's David Hollerith. And Dave, just tell me, what the heck are we looking at here? What's the report saying?

DAVID HOLLERITH: Well, Brian, at this point, I think a lot of people are suddenly familiar with Terra USD, which was Terra-- the Terra ecosystem's algorithmic stablecoin, which de-pegged the beginning of May and, obviously, sent shockwaves across the crypto markets. Now a new report from Jump is sort of adding to that and sort of unpacking what happened during the collapse. There's also another report from Nansen, a blockchain [INAUDIBLE] firm that sort of found similar things. So we're seeing all these reports come out.

And it's worth noting that Jump Crypto is actually a backer of the Terra ecosystem. And its president actually sits on the board of sort of its governing council, the Luna Guard Foundation. So that's where Jump stands in all of this. But from what they found, the main sort of takeaway is that larger investors tended to sell immediately once the stablecoin began to de-peg on Saturday.

So between Saturday, May 7, and May 9, which is Monday, when Terra eventually saw a huge drawdown, large investors, particularly a handful of investors, were said to have sold their holdings. Now, the selling began on a decentralized finance platform called Curve. And I won't necessarily get into the specifics of how that happened, but it sort of sparked a frenzy of panic, which these larger investors acted on more quickly.

Also, on the Terra ecosystem's anchor protocol, which is well known for giving investors a 20% return on staking their cryptocurrency-- or their stablecoin, also sort of saw a lot of larger investors pull out. Now, interestingly, on the anchor protocol, the Jump report also found that larger-- or smaller investors, retail investors, tried to increase their exposure during the collapse. So, obviously, they weren't large enough to sort of offset the difference.

And then the whole situation here is that the stablecoin maintains its peg to the Luna token through dynamics I won't necessarily get into, but this whole time, the Luna token was falling. So their ability to continue to keep that peg was sort of pushed down.

And all this, I think I'll add to the point that even if we do examine the dynamics here, it needs to sort of stand that no matter what certain players did do, until we see evidence of some sort of fraud or something like this, I think there has to be a large amount of responsibility that goes back to the team for building a project that wasn't able to maintain, do what it was supposed to do.

BRIAN CHEUNG: Yeah, of course, the responsibility falls on many parties here, although interesting to see who may have triggered, at least, the downfall in this. We don't know who those large investors were, an important caveat you make about who actually wrote this report. Yahoo Finance's David Hollerith, thanks so much, and have a great weekend.