The TerraUSD Debacle: A Year After the Crypto Industry’s Darkest Page
The Shocking Collapse of Terra/LUNA Ecosystem
The crypto industry experienced one of its darkest days a year ago when the algorithmic stablecoin TerraUSD (UST) lost its peg to the US Dollar, causing the entire Terra/LUNA ecosystem to collapse catastrophically in a short period of time. The market shock was immense, especially since LUNA is one of the largest cryptocurrencies off the market.
Just Before the Collapse
Before the project of the now infamous Do Kwon died a sudden death, LUNA, apart from stablecoins such as USDT and USDC, was ranked 5th among the largest cryptocurrencies, and its market capitalization was just over $40 billion. UST also had a market cap of around $18 billion. However, within a few days, this value had almost completely dried up.
The Trigger and the Attempts at Restoration
The collapse happened when UST lost its peg to the US dollar. In an attempt to restore the link, the ecosystem of the algorithmic stablecoin automatically set to work. However, unlike more traditional stablecoins like USDT, UST’s reserves consisted entirely of LUNA tokens instead of “real” assets, such as dollars. Thus, the network started receiving more LUNA tokens to restore the link, but to no avail. This had the opposite effect, and the value of LUNA started falling.
The Unbreakable Vicious Circle and the End of the Saga
The attempt to restore the link ended up creating a vicious circle from which escape was impossible. In the end, both TerraUSD and LUNA became worthless, and the project collapsed.
The consequences of the debacle were unprecedented. The prices of almost every cryptocurrency, including major crypto companies, crashed hard – some even went bankrupt because of their exposure to Terra. Indirectly, the Terra collapse even contributed to the bankruptcy of FTX. A year later, the crypto industry is still feeling the effects of the Terra debacle.
The collapse of the TerraUSD ecosystem was one of the most catastrophic events in the history of the crypto industry. The aftermath is still being felt today – a reminder that the risks and uncertainties of investing in cryptocurrencies are very real.