A theory on the mystery trader who took out Terra’s stablecoin . . . 

Remember the mystery of Wallet A, which got much of the blame for sending Do Kwon’s Terraform Labs into its death spiral?

There’s a new theory about who it was. And it’s a spicy one.

Sure, the collapse of Terra’s so-called stablecoin might seem small-time next to FTX’s house of combustible cards. But it matters because that depegging may have been the spark that set the crypto-market tinderbox ablaze. It was followed by the failure of Three Arrows Capital, and then by crypto-lenders’ broader withdrawal of credit from the market. That funding crunch is what (allegedly) led Sam Bankman-Fried & Co to commandeer customer funds to replace the lost liquidity.

Now a researcher has linked Wallet A to Jane Street, the former workplace of SBF and a couple of other states’ witness FTX alumni.

Igor Igamberdiev, head of research at crypto-market-maker Wintermute, laid out his evidence for a relationship between Jane Street and Wallet A in a Twitter thread on Tuesday.

He linked three cryptocurrency wallet addresses to Jane Street through its publicly announced partnership with Clearpool and BlockTower.

Just weeks after Terra’s collapse, that Jane-Street-linked account deposited $25mn of borrowed USDC in a Coinbase wallet. The deposit itself is nothing exciting — just part of the partnership — but the Coinbase wallet is “very interesting”, says Igamberdiev.

He continues:

Before receiving $25M from Jane Street, this Coinbase wallet received 84.5M USDC from the UST depegger after the fateful swap

This wallet didn’t have any other interactions other than the two mentioned deposits

Therefore, they are highly likely to belong to the same entity.

The “UST depegger” is Wallet A, and the “fateful swap” is a May 7 swap of 85mn UST (we’ll call it TerraUSD) for USDC in a Curve trading pool, which left that pool severely out of balance.

We can find more context in Jump Crypto’s postmortem of the Terra disaster from last June, which Robin covered nicely at the time.

Not only was the May 7 trade “the largest swap transaction in that particular Curve pool ever”, according to Jump, liquidity had already been strained in TerraUSD because of prior activity from Wallet A on other crypto platforms like Binance. As Jump put it at the time:

. . . one hypothesis to link these facts is that Wallet A sold UST on Binance, and that relatively one-sided selling pressure manifested in worsened liquidity for future UST sales on both Binance and Curve. We do not have any visibility into the transactions at Binance, so we can neither validate nor reject this hypothesis with certainty.

To be sure, Jump’s report said the liquidity problems were exacerbated by transactions from another wallet, deemed Wallet B. But that wallet belonged to crypto-lender Celsius, as Igamberdiev wrote in his thread on Tuesday:

It’s worth looking over the full thread from Igamberdiev, then giving Jump’s report a fresh read.

We’ve called and emailed a Jane Street representative to see if the firm will confirm or deny playing the role of Mrs. O’Leary’s cow for crypto’s own Great Chicago Fire. We haven’t heard back yet and will update if we do.