Crypto utopia and the 'Bank Killer' - the crash of the Terra (LUNA) ecosystem in May 2022 — a loss of $40 billion in 3 days.
Founder Do Kwon created the algorithmic stablecoin UST, which was supposed to always hold a peg at $1. Its price was maintained not by real dollars, but by a mathematical algorithm through its native token
$LUNA .
To attract funds, they launched the Anchor protocol, promising 20% annual returns in dollars (UST) with no risks. Investors flocked to deposit their savings.
"Death spiral"
1. Whales simultaneously withdrew and sold massive amounts of UST.
2. $UST lost its dollar peg and fell below $1. Panic ensued.
3. The algorithm, in an attempt to save UST, began to automatically and uncontrollably mint trillions of new LUNA tokens to buy back the stablecoin.
4. Result: LUNA plummeted from $119 to $0.00001 in a couple of days. UST turned into cents. About $40 billion of investors evaporated. Do Kwon is now under arrest.
Takeaways
• 20% annual returns "with no risk" don’t exist. High yields always come with hidden pyramids or extreme risks.
• Don’t trust marketing. The charisma of the creator cannot replace audits and real asset backing.
• Diversify. You can’t keep all your capital in one project.
$LUNA $USTC DYOR
#LUNA #USTC