What happened to Terra (LUNA)? Why did investors lose billions of dollars overnight? 😱 Let’s uncover the untold story of this epic collapse that shook the crypto world.
1️⃣Terra Disaster: A $40 Billion Disaster
In May 2022, Terra (LUNA) went from being one of the most buzzed about projects in the crypto world to a complete disaster. Has its market cap disappeared? Has trust been shattered? 🌪️
Terra's collapse was one of the biggest setbacks in cryptocurrency history. Here's how it all happened... 👇
2️⃣What is Terra (Luna) and UST?
Terra was built around UST, an algorithmic stablecoin designed to stay pegged to the dollar. But unlike traditional stablecoins like USDT, UST wasn’t backed by reserves — it was based on an ecosystem that included LUNA tokens. Sounds too good to be true, right? 🚀 But it wasn’t as stable as they thought…
3️⃣ The “stable” model with a fatal flaw
Here's how the system was supposed to work: You could exchange 1 UST for $1 of LUNA — minting and burning LUNA to keep the price stable.
But when things go wrong, this mechanism deviates into a catastrophic chain reaction. 😣 Instead of stabilizing UST, it makes things worse. 🤯
4️⃣ The Collapse Begins: Withdrawals from Anchor
In May 2022, panic set in. 🚨 The $1 UST peg began to slide after massive withdrawals from Anchor, a DeFi platform offering a 20% return on UST deposits. Investors rushed to withdraw their funds, triggering a sell-off that sent UST’s value plummeting. 📉
5️⃣ The beginning of the death ring
As UST dropped in value, the algorithm tried to mint more LUNA to restore the peg. But this flooded the market with trillions of LUNA tokens, causing its value to drop from $80 to around $0.0001. 😱 Terra’s $40 billion capitalization evaporated overnight. 💥
6️⃣ Du Kwan's Desperate Steps
With UST and LUNA collapsing, all eyes were on Do Kwan, the project’s founder. Known for his bold and often defiant claims, Kwan’s tone shifted to full-on damage control.
The team tried everything to save the situation: minting more LUNA, using Bitcoin reserves, but it was too little, too late. 💔
7️⃣ A Split in the Road: Terra's "Recovery" Plan
Cowan proposed a fork in the blockchain to launch a new version of LUNA. But the damage was done. Trust was shattered, and investors were in a complete retreat. Legal battles ensued, and Cowan was facing serious legal consequences. ⚖️
8️⃣ Du Kwan's involvement in the burning wallet controversy
It was revealed that Kwan had more control than he originally claimed. Despite his claims, he was in control of the burned wallet and had access to key actions that led to the collapse. 🧐
9️⃣ Organizers' intervention
Terra’s collapse caught the world’s attention from regulators. 🚨 As the situation stabilized, governments and authorities began investigating Terra’s activities, with many expressing concerns about fraud and market manipulation. 🌍
🔟 Arrest of Du Kwan
In March 2023, after months on the run, Kwan was finally caught in Montenegro using a fake passport. 🛑 His arrest marked a new chapter in the legal fallout, with authorities in South Korea, the United States and elsewhere closing in on him. 🔍
1️⃣1️⃣ The Biggest Lesson: Risks in Cryptocurrencies
The Terra collapse exposed the risks of algorithmic stablecoins and overtaxed DeFi projects. 🔥 It showed that in crypto, everything can change in an instant. The main lesson? Do your research, understand the risks, and don’t invest more than you can afford to lose. 🚨
This was one of the biggest cryptocurrency scandals of all time. Stay informed, stay safe, and always be vigilant in this volatile world. 🌍💡