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Today marks the 4th anniversary of the Terra (LUNA) collapse, one of the largest ecosystem failures in crypto history. Popular analyst Ash Crypto highlighted the speed of the breakdown, noting that LUNA fell from around $129 to $0 within hours, a move that still affects many users who were caught in the event.
The episode began in early May 2022, when Terra Dollar (UST)—an algorithmic stablecoin created by founder Do Kwon—started to depeg from its $1 peg. Rather than being backed by dollar reserves, UST relied on an arbitrage mechanism linked to LUNA.
Many users had joined the Terra platform for high staking rewards tied to UST. As UST lost its peg and became untethered from $1, panic spread and users began liquidating their UST holdings. In response, the algorithmic system began issuing large amounts of LUNA to compensate, triggering a death spiral that drove further selling and a rapid price collapse.
According to the account of the event, the supply of native LUNA increased from several hundred million tokens to trillions within hours, leaving it effectively worthless. LUNA reportedly lost 99.999% of its value. The broader Terra ecosystem—once valued among the top 5 digital assets—collapsed as well, and Do Kwon fled immediately after the failure.
The losses were described as substantial: users lost an estimated $40 billion to $60 billion due to the system glitch. Beyond individual investors, major crypto lending platforms including Three Arrows Capital (3AC), Voyager, and Celsius also went bankrupt, creating additional stress for investors who were not directly exposed to LUNA. Aggregate losses were stated to have exceeded $100 billion, and the article notes that many of these funds have not been recovered.
After the collapse, Do Kwon went into hiding. He was later found to be at fault for the ecosystem’s inability to maintain the peg, with the article stating that he siphoned hundreds of millions of dollars in value from the ecosystem—leaving it unable to withstand severe price movements or provide fair compensation.
Do Kwon remained at large for nearly a year before being caught in Montenegro and extradited to the United States in 2023. He pled guilty, received a 15-year sentence, and is banned from holding and trading crypto again.
The Terra collapse is presented as a cautionary example of how unbacked stablecoin designs and complex DeFi mechanics can fail under real-world stress.
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