Today is considered one of the darkest days in the history of the crypto assets market. Terra’s LUNA cryptocurrency started to collapse in the second week of May 2022, but by 15 May 2022, the coin had shed a whopping 99.999% of its value, going from $100 just a week prior to less than $0.002 by the end of the day.
Here is what happened in that eventful week:
The father of all dumps in the crypto market’s history left tens of thousands of investors holding bags of worthless LUNA tokens. Overall, investors are said to have lost more than $7 billion on this coin.
Why did LUNA Collapse?
LUNA’s value was set up in such a way that Terra’s algorithmic stablecoin US Terra (UST)’s fluctuations would be handled by LUNA’s liquidity. In hindsight, it was an absurd model that something as fluctuating as a cryptocurrency with no use case could make a stablecoin “stable”. UST, too, had nothing backing it.
Once UST lost 40% of its value, LUNA nosedived and has yet to recover from it. Some bear market traders were able to make some money from the wild fluctuations of LUNA (now LUNC), but that was it. There were reports of investors losing hundreds of thousands of dollars and their entire life savings on the digital token. It wasn’t a pleasant sight.
What Happened to Terra’s Founder?
Do Kwon, the Korean founder of the Terra project, fled and remained a fugitive for many months before he was finally caught in Montenegro’s international airport, and an extradition battle began. Both South Korea and the United States wanted him on their soil so he could answer for his financial crimes. Eventually, it was decided that he would be sent to the East Asian country, and he is facing a lengthy period behind bars.
Before he was arrested, Do Kwon attempted to conjure up a face-saving for the token project and launched another crypto to compensate the affected people. The resulting coin was also called LUNA, while the previous one was rechristened LUNC. But nothing saved the doomed coin, and both are pretty worthless now.
The Aftermath
The LUNA fiasco highlighted the fragility of the altcoin market. While Bitcoin has remained relatively stable most of the time, altcoins have been a mixed bag overall, with many coins failing. LUNA was overshadowed the same year by an even bigger fraud in the form of the FTX exchange scandal. Do Kwon and former FTX CEO Sam Bankman-Fried remain public enemies no.1 and 2 in crypto circles.
The episode reminds investors to be careful when investing in risky endeavors like many altcoins.
