$40 billion in losses
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The Terra network, founded by Do Kwon and Daniel Shin, initially aimed to revolutionize payments with its blockchain and stablecoin ecosystem.
By 2022, Terra's tokens LUNA and UST had become household names in crypto, drawing significant investor interest.
TerraUSD (UST) was an algorithmic stablecoin designed to maintain a $1 peg, backed by LUNA tokens.
Unlike traditional stablecoins, UST relied on complex algorithms and market incentives rather than tangible assets.
The system's backbone was the Anchor Protocol, which promised up to 20% annual yield on UST deposits.
This high yield attracted vast amounts of UST, making up 75% of its total supply, but also raised sustainability concerns.
In early May 2022, over $2 billion worth of UST was unstaked and rapidly liquidated.
This massive sell-off caused UST to lose its peg, dropping to $0.91, triggering a wave of panic selling and further destabilization.
The depegging led to an oversupply of LUNA as traders converted their devalued UST, causing LUNA's price to plummet.
The collapse wiped out approximately $60 billion from the crypto market.
Prominent firms like Voyager, Celsius, and Three Arrows Capital faced severe repercussions, leading to bankruptcies and forced liquidations.
TerraUSD (UST) was an algorithmic stablecoin designed to maintain a $1 peg, backed by LUNA tokens.
Unlike traditional stablecoins, UST relied on complex algorithms and market incentives rather than tangible assets.
1:00The system's backbone was the Anchor Protocol, which promised up to 20% annual yield on UST deposits.
This high yield attracted vast amounts of UST, making up 75% of its total supply, but also raised sustainability concerns.
In early May 2022, over $2 billion worth of UST was unstaked and rapidly liquidated.
This massive sell-off caused UST to lose its peg, dropping to $0.91, triggering a wave of panic selling and further destabilization.
The depegging led to an oversupply of LUNA as traders converted their devalued UST, causing LUNA's price to plummet.
Major crypto exchanges delisted LUNA and UST, and the Terra blockchain was temporarily halted.
1:56The collapse wiped out approximately $60 billion from the crypto market.
Prominent firms like Voyager, Celsius, and Three Arrows Capital faced severe repercussions, leading to bankruptcies and forced liquidations.
In the aftermath, Terra's Luna Foundation Guard deployed billions in Bitcoin reserves in an attempt to stabilize UST, but the effort failed.
Do Kwon's recovery plans, including launching Terra 2.0, did little to restore confidence.
In the aftermath, Terra's Luna Foundation Guard deployed billions in Bitcoin reserves in an attempt to stabilize UST, but the effort failed.
Do Kwon's recovery plans, including launching Terra 2.0, did little to restore confidence.
Do Kwon frequently misled people about the stability of Terra's tokens.
Before the crash, he even accepted a $1M bet that Luna wouldn't fall and wagered that UST would not lose its peg to the dollar.
On September 15, 2022, South Korean authorities issued an arrest warrant for Do Kwon, accusing him of fraud and illegal fundraising.
Kwon allegedly transferred 40,000 BTC to secret wallets, further tarnishing his reputation.
In March 2023, Do Kwon was arrested in Montenegro while attempting to board a flight to Dubai with falsified documents. He was sentenced to four months in prison for document forgery.
South Korea and the United States are seeking his extradition to face charges.
The LUNA-UST crash serves as a critical lesson in the risks associated with algorithmic stablecoins and high-yield promises.
It underscores the importance of transparency, proper risk management, and regulatory oversight in the crypto industry
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