It will still be burned into the minds of most crypto investors. A year ago, the algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar. As a result, the entire Terra/LUNA ecosystem collapsed catastrophically in a short period of time. Many tens of billions went up in smoke, and countless investors were left with empty pockets. It remains one of the darkest pages in the history of the crypto industry.
Terra Debacle was second to none
Of course, we had already seen cryptocurrencies fall hard in May of 2022, but the shock at LUNA was really extremely large. This was of course partly because LUNA is one of the largest cryptocurrencies was off the market. Just before everything collapsed like a house of cards, LUNA was ranked 5th among the largest crypto coins, apart from stablecoins such as USDT and USDC.
Just before the project of the now infamous Do Kwon died a sudden death, the market capitalization of the coin was just over $40 billion. In addition, UST also had a market cap of around $18 billion. Within a few days, this value had almost completely dried up.
One year ago today, a historic tweet was written. pic.twitter.com/BdrZ5bdzuY
— Dan Crypto Trades (@DanCrypto) May 9, 2023
Everything started when UST the clutch, either peg, with the US dollar lost. Normally, a stablecoin always has a value equal to the underlying currency, in this case the dollar, but UST was unable to maintain this peg.
Because UST was an algorithmic stablecoin, the ecosystem automatically set to work to restore the link. More traditional stablecoins like USDT have their reserves in dollars and other “real” assets, but with Terra, for UST, these reserves consisted entirely of LUNA. Losing the link with the dollar, the network began to receive more LUNA tokens minted to restore it. This turned out to be in vain, and had the opposite effect. The value of LUNA, meanwhile, was also in free fall.
In the end, a vicious circle emerged from which an escape turned out to be impossible in any way. By now, we all know how this story ended.
The aftermath can still be felt
The consequences of the debacle were unprecedented. The prices of almost every cryptocurrency crashed hard, but eventually even other major crypto companies went under because they had exposure to Terra. Indirectly, Terra’s demise even contributed to the bankruptcy of ftx.
The consequences of the Terra crash can still be felt today, exactly one year later.