Terra UST/LUNA collapse event

Event · PageRank 0.0015

Also known as: UST depeg

Overview

TerraUSD (UST), an algorithmic stablecoin that maintained its dollar peg by minting and burning the LUNA token, broke down in May 2022. UST began slipping below $1 on May 7, 2022; as holders exited, the arbitrage mechanism minted enormous quantities of LUNA, collapsing its price from a peak above $116 in April to below $1 by May 11 and to fractions of a cent by May 13. UST itself fell to around $0.10 before stabilising near $0.02. More than $40 billion of value was destroyed, triggering contagion across crypto lenders and funds, and Terraform Labs co-founder Do Kwon — who had tweeted "deploying more capital, steady lads" during the collapse — was later convicted of fraud and sentenced to 15 years in prison.

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Frequently asked questions

Why did UST collapse?

UST was an algorithmic stablecoin backed by a mint-and-burn arbitrage mechanism with LUNA rather than by cash reserves. When UST fell below $1 in May 2022 and holders rushed to exit, the mechanism minted vast amounts of LUNA, destroying its price and leaving nothing to restore the peg.

How much value was lost?

More than $40 billion. LUNA fell from a peak above $116 in April 2022 to fractions of a cent by May 13, and UST dropped to around $0.10 before settling near $0.02.

What happened to Do Kwon?

Terraform Labs co-founder Do Kwon was convicted of fraud over the collapse and sentenced to 15 years in prison.