Part 7 - Chapter 1: The Fall of Crypto Gods — 2022 Begins to Shake
If 2022 was a house of cards, Terra Luna was the table it was stacked on.
And in May, that table flipped.
Let’s break it down:
🪙 What Was Terra?
Terra was a blockchain.
It had:
- A stablecoin: UST
- A main coin: LUNA
- And a promise: “Decentralized money that doesn’t need a bank.”
UST was supposed to always be worth $1.
But unlike USDT or USDC (which are backed by real cash/bonds), UST was backed by…
😬 Algorithmic magic + LUNA tokens
🔁 The Peg Mechanism (a.k.a. the risky math)
Here’s how it claimed to stay stable:
- If UST > $1: You could trade LUNA for UST and make a little profit (pushing price down)
- If UST < $1: You could burn UST for LUNA and sell that (pushing price up)
It relied on arbitrage and confidence.
But if people panic and start dumping UST…
and nobody wants to hold LUNA either…
Boom. Death spiral.
🌪 The Spiral Begins — May 2022
- Big holders (aka “whales”) started selling UST
- The peg slipped — UST dropped to $0.98… then $0.91… then $0.70
- People panicked
- Billions in UST flooded the market
- To try and save the peg, the system minted more and more LUNA
- LUNA’s price crashed from $80 → $0.02
- UST never returned to $1
In 3 days, over $60 billion of market value was erased.
💀 Why It Was So Bad
- It was huge — Terra was everywhere: wallets, exchanges, DAOs, DeFi.
- It was supposed to be “safe” — a “stablecoin” failing shattered trust.
- It dragged others down — funds that held UST/LUNA got wiped → contagion
DeFi protocols relying on UST also crashed.
Even Bitcoin dropped sharply — because the Terra Foundation had been buying BTC as collateral (and had to sell it in panic).
🧠 Aftershocks
- Anchor Protocol (which promised 20% APY for UST deposits) → collapsed
- Celsius Network → locked user funds
- Voyager → bankruptcy
- 3AC (Three Arrows Capital) → liquidation
- Faith in “stablecoins” → forever shaken
This wasn’t just a token failing.
It was a systemic crypto-level event. A black hole.
🧩 TL;DR Recap
| 🧷 Term | 🔎 What Happened |
|---|---|
| UST | Lost peg, crashed below $1 |
| LUNA | Hyperinflated to save UST, then went to zero |
| Anchor | Promised 20% APY, collapsed |
| Trust | Evaporated |
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