The collapse of the Terra ecosystem, a blockchain project centered around the algorithmic stablecoin UST, has been widely attributed to its founder, Do Kwon, who now faces extradition to the United States on charges of orchestrating a multi-billion dollar fraud. However, Jacob Gadikian, CEO of Notional Labs, a blockchain services firm specializing in the Cosmos network, challenges this narrative, arguing that the devastating de-pegging of UST from the US dollar was not Kwon’s doing, but rather the result of a sophisticated attack by an as-yet unidentified third party. Gadikian contends that the real perpetrators of this “heist” remain at large, despite Kwon’s arrest.
Gadikian’s argument centers around the concept of “chain disruption,” positing that the Terra blockchain was deliberately targeted and manipulated to destabilize UST. He points to a period of intense activity during the de-pegging event, characterized by an unusual surge in transactions and a targeted attack on the network’s validators. This surge, he alleges, overloaded the system, preventing the blockchain from implementing its stabilizing mechanisms and ultimately leading to the catastrophic collapse of UST. Gadikian supports his claim with a video demonstration of a similar attack on the Cosmos Hub security testnet, which replicated the effects observed during the UST de-pegging.
Further corroborating Gadikian’s theory are analyses from other blockchain investigators who observed a sixfold increase in transactions during the de-pegging event. These transactions, attributed to automated bots, effectively clogged the network, preventing Terra’s algorithmic mechanisms from restoring the UST peg. Blockchain intelligence firm Flipside echoed this observation, highlighting the disruptive impact of these bots on Terra’s ability to maintain its stablecoin’s value. The orchestrated nature of the attack is further suggested by the origin of these transactions, traced back to a small number of addresses executing a massive volume of failed transactions.
The sheer volume of these failed transactions, exceeding 70,000, overwhelmed the network’s capacity. Validators, responsible for processing transactions, could only handle a limited number (around 5,000) in their mempool, the holding area for pending transactions. This bottleneck effectively crippled the network, preventing legitimate transactions from being processed and further exacerbating the instability of UST. This network congestion, Gadikian argues, played a crucial role in the de-pegging event, highlighting the vulnerability of blockchain systems to targeted attacks aimed at disrupting their functionality.
The timing of Gadikian’s allegations coincides with Do Kwon’s extradition to the US to face charges related to the Terra collapse. U.S. prosecutors estimate that over a million individuals were affected by the collapse, making it one of the most devastating events in the history of cryptocurrency. While Kwon is accused of orchestrating a fraud that led to losses of approximately $50 billion, Gadikian’s assertions raise questions about the full extent of Kwon’s involvement and the possibility of other actors playing a significant role in the downfall.
The implications of Gadikian’s claims are substantial. If true, they suggest that the focus on Do Kwon may have overshadowed the pursuit of the actual perpetrators of the attack. This raises the possibility that the individuals responsible for manipulating the Terra blockchain and causing the massive financial losses remain unidentified and unpunished. Furthermore, Gadikian’s assertion highlights the vulnerability of blockchain networks to sophisticated attacks, underscoring the need for robust security measures to prevent similar incidents in the future. The ongoing investigation into the Terra collapse will undoubtedly need to consider Gadikian’s allegations and explore the possibility of a coordinated attack as a contributing factor to the catastrophic de-pegging of UST.
