Terra Crash - May 2022

Terra an algorithmic stable-coin that should maintain a $1 peg is crashing and has broken its peg (first on sunday 8th May) and then more seriously on 10th May 2022. Finally, on Thursday May 12th Luna collapsed to zero, trading ceased on all major exchanges and the blockchain halted.

Terra is just the latest in a long-line of notes/algorithmic-stablecoins that have failed (no long-lived such product exists).1


Work in progress. Contributions welcome!

Tuesday May 12th

The organization is liquidating large amounts of bitcoin (over $2bn) to try and defend the beg which illustrates the potential contagion risk in the crypto ecosystem.

Terra (LUNA) Collapses 60% as UST “Stablecoin” Drops Below $0.7 - https://u.today/terra-luna-collapses-60-as-ust-stablecoin-drops-below-07


A complete collapse of Terra

Rumors of a complete collapse of Terra quickly spread on social media. Nevertheless, the company co-founder, Do Kwon, kept calm. However, the founder had to liquidate a huge number of Bitcoins to save the stablecoin.

Data from monitoring source BitInfoCharts confirmed the huge sales. The balance of the de Luna Foundation Guard went from 70,000 Bitcoin, (worth $2.23 billion), to 0 Bitcoin.

The Luna Foundation Guard did say that they have not sold all Bitcoin and promised to update the community on the current situation.

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https://www.bloomberg.com/news/features/2022-04-19/terraform-s-do-kwon-s-huge-bitcoin-buys-catch-crypto-billionaires-attention [@shen-regan-2022-king-lunatics-becomes]

Back in Miami, Novogratz sized up Kwon’s pivot to Bitcoin as a reserve asset to back up UST.

“It’s not without risk, right?” he told the audience in his keynote address at the conference. “He’s in this transition right now. The plan is to buy $10 billion worth of Bitcoin. And as that ecosystem grows, that number will grow. That’s all good as long as there’s not a run on the bank.”


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No matter how this ends, I don't want people to call UST decentralized again. Even the little collateral backing it has is intransparent and controlled by a single party. Used to perform discretionary open market operations. This is like 10x worse than the Fed.

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There is a rumor spreading about Jump, Alameda, etc. providing another $2B to “bail out” UST. Whether this rumor is true or not, it makes perfect sense for them to spread. The biggest question here is, even if they can get it to $1 by some miracle, the trust is irreversibly gone




$LUNA There should be some legal action against something like this. 80% drop in 1 week?? Do you think the SEC is going to look into this?

Bloomberg unclear "why all of Terra's carefully-planned mechanisms failed to work"


Exactly why all of Terra’s carefully-planned mechanisms failed to do their job remains unclear, and conspiracy theories abound about shadowy actors with untold wealth to play with. But one thing’s for certain: Kwon isn’t going down without a fight.

Ed: find this astonishing. There is an obvious reason why belief equilibria can collapse in situations like this. What's there to work out?

Do Kwon tweets ...

May 11 - final effort

Best analysis is in https://www.bloomberg.com/opinion/articles/2022-05-11/terra-flops

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1/ Dear Terra Community:


  1. For a history of failed algorithmic stablecoins see https://twitter.com/moo9000/status/1523958008782458881 ↩