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Insiders: UST was bailed out by Jump last year. They misled the market

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Even retail investors who have been involved in the crypto market for years have been deceptively instilled false confidence in anchoring.

FatMan is a member of Terra Research Forum

CZGSWS, 0x9F, BlockBeats

When the UST fell from $1 to $0.01, retail investors stayed with it -- 60.4 per cent held to zero, while the rest lost an average of 70 per cent. Why is that? Where does their confidence come from? The truth behind UST's first drop of anchor in May 2021 May tell you.

Several factors boosted investor confidence in the 2022 unanchoring process, including LFG's advertising, Do Kwon's confident tweets and the sense of security Anchor provided. But the smart money is looking at historical data, as UST has unanchored once before.

On May 23, 2021, the crypto market plunged, and UST seriously deviated from its anchor for the first time in its history. Everything is a familiar scenario -- LUNA drops, serial liquidation worsens, UST drops to $0.95 -- and Terra is about to die.

Here comes the truth people don't know. At this point, Do Kwon fights to save UST, but he knows he cannot save Terra on his own. He is all too familiar (unbeknownst to investors) with the death spiral of the previous stabilisation project, Basis Cash. LUNA and UST were collapsing, and he needed money.

He called Jump Crypto, a venture capital fund he had been working with, and begged them to help. Greedy, Jump agrees to the deal: Jump will bail out Terra in exchange for a monthly LUNA payment. More details for another day.

The rescue plan was never made public. You won't find the article online, it's been deliberately hidden from retail investors. We know all this now, thanks to my source inside Jump. But how did Jump's rescue affect investor behavior last month?

To the public, it looked as if the UST had dropped anchor and then magically returned to anchor through a mysterious infusion of cash. Do Kwon solidifies his lie with a perfect explanation of "retail use" at this point. He claims that users of CHAI, a digital payment app, are using Terra's Stablecoin.

On the subject of 2021 decoupling and in subsequent interviews, Do Kwon suggested that the exchange rate recovered because UST had a strong demand base that would flood in regardless of market conditions. But that's wrong -- Chai didn't use UST at all.

But more importantly, he didn't mention Jump's rescue, which was the most critical element in defending the hook. Despite the back-room deals, UST savers further believed in the "self-correcting" narrative, further reinforcing their belief in anchoring.

Fast forward to May 2022. The unanchoring happens, retail investors lose everything, it's a perfect storm. Thanks to its advanced liquidity monitoring system, big money was quickly withdrawn -- some even knew about the bailout. Only ordinary investors still believe Do Kwon's tweet....

But even crypto-savvy retail investors have been deceptively infused with false confidence in anchoring. They think this has happened before and the market will correct itself. "What if it sells at $0.80 and comes back to anchor like last time? Better to hold on, right?"

But it was too late. LUNA & UST enters a death spiral. Do Kwon asked funds including Jump to bail it out again -- and saw a bailout deal happen again -- but LUNA fell so fast that the VCS quickly withdrew their offer, knowing there was no longer any need to save the hook, and a crash ensued.

This mixture of narrative manipulation, hidden trading, false confidence on Twitter, two years of massive marketing and false promises, and protocol-level fraud created the perfect liquidity exit mechanism that hurt retail investors the most and left them at the end of their teats.