In May 2022, the cryptocurrency world experienced a massive explosion, called Luna (along with its stablecoin UST), which evaporated hundreds of billions of RMB in an instant, marking the biggest disaster in cryptocurrency history. May 11-12: LUNA dropped from $120 to $0.00005, a decline of over 99.99999%, essentially going to zero.

The protagonist is a Korean named Do Kwon, who is particularly arrogant, claiming to be the 'King of Luna' every day on Twitter.

He created something called UST, which he claimed was an 'algorithmic stablecoin', promising to always equal $1. How to maintain $1? By using Luna as a 'sponge':

  • When UST rose to $1.01, some people burned Luna to exchange for UST to profit, causing Luna to decrease.

  • When UST dropped to 0.99 dollars, some people burned UST to exchange for Luna worth 1 dollar, reducing the amount of UST.

Sounds smart, right? But it's actually a Ponzi scheme.

To attract people, he created a finance app called Anchor, claiming 'Deposit UST and earn 20% annually! Almost no risk!'
Where does this 20% come from? The initial funds relied entirely on new investors + the official subsidy with Bitcoin. Many people saw the 20%, got excited, and dumped all their U tokens in, locking up nearly 20 billion dollars at its peak.

In May 2022, someone (rumored to be a big institution) saw through this Ponzi scheme and began to sell UST aggressively while withdrawing money from Anchor. The result:

  • UST began to drop to 0.98, 0.95, 0.90...

  • The system panicked and started printing Luna crazily to burn UST, trying to pull the price back.

  • Once it started printing, it couldn't stop; Luna went from hundreds of millions to trillions, completely turning into worthless paper.

  • In 3 days, Luna dropped from 80 dollars to 0.00001 dollars, a decline of more than 800 million times, basically returning to zero.

  • UST also fell from 1 dollar to a few cents, and now it is still a coin of little value.

Retail investors, institutions, and venture capitalists were all blown up; big players like Three Arrows Capital were directly wiped out, leading to a series of exchanges and lending platforms collapsing one after another.

Kwon Do-hyung fled, was arrested in Montenegro in 2023 with a fake passport, and now both the US and South Korea are trying to extradite him, facing decades or even a hundred years of imprisonment.