Terra/Luna
Algorithmic stablecoins are inherently fragile. When confidence breaks, the death spiral is unstoppable.
2018 → 2022
$207M
Crypto/DeFi
South Korea
IdeaProof AI Failure Score
What Happened: The Timeline
2018
Terraform Labs founded by Do Kwon
2021
UST reaches $18B in circulation, LUNA hits $40B market cap
May 7, 2022
Large UST sell-off begins depeg spiral
May 10, 2022
Death spiral: $60B evaporates in 72 hours
Mar 2023
Do Kwon arrested in Montenegro with fake passport
Root Causes
Terra/Luna was a blockchain ecosystem built around UST, an algorithmic stablecoin pegged to $1 through a mint/burn mechanism with the LUNA token. At its peak, UST had $18B in circulation and LUNA had a $40B market cap. In May 2022, a large UST sell-off triggered a "death spiral" — as UST depegged, LUNA was minted to restore the peg, crashing its price, which further destabilized UST. $60B in value evaporated in 72 hours. Founder Do Kwon was arrested in Montenegro in 2023 and later extradited to face fraud charges.
Frequently Asked Questions
Sources & References
Could This Failure Have Been Prevented?
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