The biggest crypto collapse, $300 billion evaporated in 72 hours!

In May 2022, the crypto world experienced one of its biggest debacles with the spectacular collapse of Terra LUNA, which wiped out over $40 billion in value in just 24 hours. This ecosystem-shaking disaster will be remembered as one of the biggest crashes in digital asset history.

A dizzying fall with devastating consequences

On May 7, 2022, the Terra ecosystem, created by Do Kwon and Daniel Shin, was still dominating the crypto market from its offices in Singapore. Its algorithmic stablecoin UST, which is supposed to maintain perfect parity with the US dollar, had a capitalization of $18 billion, while the LUNA token peaked at $119.

The Anchor protocol, the cornerstone of the system, attracted investors with incredible returns of 20% per year on UST deposits.

But within 48 hours, the unthinkable happened. A massive wave of withdrawals exceeding $2 billion caused the UST to wobble and break its parity with the dollar. This first crack triggered a catastrophic domino effect: the more UST fell, the more the algorithmic mechanism created new LUNA tokens, driving their value to zero.

A desperate attempt by the Terra Foundation Guard to deploy its bitcoin reserves to stabilize the system proved futile. In less than 72 hours, LUNA and UST collapsed, wiping out the savings of thousands of investors.

A crypto-earthquake with lasting effects

The shockwave of this disaster quickly spread beyond the boundaries of the Terra ecosystem. Major players in the sector such as Celsius, Voyager and Three Arrows Capital have all filed for bankruptcy, victims of their exposure to disaster. The total capitalization of the crypto market fell by more than 300 billion dollars.

For Do Kwon, the mastermind behind this debacle, the fall was as brutal as it was spectacular. After escaping from South Korea, he was arrested in March 2023 in Montenegro with false documents. South Korean and US authorities are now fighting for his extradition, accusing him of massive fraud and market manipulation.

His attempt to relaunch with Terra 2.0 only increased the mistrust of investors already burned by his false statements and the mysterious transfer of 40,000 bitcoins to unidentified wallets.

In short, the collapse of Terra LUNA stands as a stark warning against the dangers of overly complex financial systems and the promise of unrealistic returns. This disaster forced the crypto industry to question itself and push for more transparency and regulation.

In an ever-evolving market, this debacle serves as a reminder that economic fundamentals always prevail behind technological innovation and promises of easy profit. Cryptofinance will need to learn from this to rebuild on a firmer footing.

DISCLAIMER OF LIABILITY

The comments and opinions expressed in this article are solely those of the author and should not be considered investment advice. Before making any investment decision, do your own research.