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Today marks a somber 4th anniversary of one of the biggest ecosystem collapses in the crypto economy: the Terra (LUNA) fiasco. Popular crypto analyst Ash Crypto tweeted about the major collapse that sent LUNA from around $129 to $0 within hours. He shared the dramatic candlestick chart of LUNA’s plunge, which still haunts millions of affected users.
Ash Crypto tweeted:
The whole episode began in early May 2022, when the Terra Dollar (UST), an algorithmic stablecoin designed by founder Do Kwon, began to depeg from its $1 peg. Instead of actual dollar reserves, the UST was backed by an arbitrage mechanism tied to the native LUNA cryptocurrency. Many users had flocked to the Terra platform because it promised massive staking rewards for its UST coin, but panic soon spread as the digital currency became untethered from its value. A large number of users began liquidating their UST, and the algorithmic system started printing large amounts of LUNA to compensate, initiating a death spiral that led to this massive price dump.
As a result of this hyperinflationary action, the supply of native LUNA rose from a mere several hundred million tokens to trillions in a matter of hours, rendering it worthless. LUNA lot 99.999% of its value and the whole Terra ecosystem that was once valued among the top 5 digital assets bit the dust, and Do Kwon immediately fled. In total, anywhere between $40 and $60 billion was lost by users due to the system glitch.
In addition to individual investors and traders, major crypto lending platforms like Three Arrows Capital (3AC), Voyager, and Celsius also went bankrupt, causing significant stress for investors who weren’t even directly exposed to LUNA. The associate losses in practice have exceeded $100 billion, and many of these funds still haven’t been recovered by the system.
 
The Hunt for Do Kwon
Founder Do Kwon went into hiding immediately after the collapse. It was soon found that he was at fault for the Terra ecosystem’s inability to maintain a strong peg, as he regularly siphoned hundreds of millions of dollars in value from the ecosystem, leaving it unable to withstand violent price movements or provide fair compensation.
Do Kwon remained at large for almost a year before he was caught in Montenegro and extradited to the US in 2023. He pled guilty to the charges and received a 15-year sentence. He is banned from holding and trading crypto ever again. He, along with former FTX CEO Sam Bankman-Fried, remains one of crypto’s biggest bogeymen, and the two scandals both took place in 2022, making it one of the worst years in crypto.
The Terra collapse serves as a cautionary tale for unbacked stablecoin ventures and complex DeFi mechanics that tend to fail when tested in the real world.