Case Study: The Meteoric Crash of Terra Luna


May 7, 2022, will go down in history as one of the most violent stablecoin crashes of all time. On this date, the Terra (UST) algorithmic stablecoin lost its one-dollar peg causing a cascading chain of events leading to a 95%+ drop in the value of its sister token, Luna, from an all-time high of $119.20 to less than 10 cents. Blockchain analytics firm Elliptic estimates that investors lost nearly 42 billion USD in the Terra Luna crash. Furthermore, the crash of the two sister tokens brought down the crypto markets as a whole, with bitcoin (BTC) losing a quarter of its value over the course of three days. The Terra Luna crash compounded upon the already existing panic-selling in the crypto markets (due to major events such as the Ukraine-Russia war) to build a devastating “crypto winter” for the cryptocurrency markets as a whole.

What happened?

At 18:00 UTC Saturday, May 7, 2022, TerraUSD (USDT) began to deviate from its 1 USD peg, trading for around 0.99 USD. At 21:52:53 UTC a terra wallet address (linked to Terraform Labs) dumped 85 million UST, causing UST to depeg for a few hours before recovering slightly. However, the same wallet ended up dumping a total of 285 million UST over the next 48 hours, along with multiple other major holders of UST, causing UST to once again lose its peg and a flurry of traders taking short positions.

These events caused the rapid depegging of UST and by May 13 UST hit an all-time low of $0.13 USD and by May 18 UST hit another all-time low of $0.09 USD.

Posted in ,