72 hours of bloodshed in the crypto world, the Luna myth shatters: a $40 billion collapse story

In May 2022, I witnessed the most brutal crash event in the crypto world history. Luna, which was once revered by many investors as the “crypto world Maotai”, fell from $119 directly to a few cents, all within just a few days. Thinking of those investors with Full Positions and Heavy Positions, I still feel a pang of heartache.

Market Crash Scene: $40 Billion Evaporated in a Week

The collapse of Luna is breathtaking. From a market value of $41 billion to nearly zero, over 200,000 investors have lost everything. Meanwhile, UST, which was once the third-largest stablecoin in the world, plummeted from $1 to less than 1 cent. Many analysts have compared this disaster to the “Lehman moment in the crypto world.”

The most brutal data:

• Luna fell from $119.5 to $0.00005
• UST market value evaporated 99% in a week from 18 billion USD
• The spillover effect caused Bitcoin to fall below $27,000, and Ethereum to drop below $1,800.
• The total liquidation across the network exceeds 107.3 billion yuan

Death Spiral: The Fatal Design of Algorithmic Stablecoins

The collapse of Luna was not accidental, but rather a time bomb in its design mechanism. The relationship between UST and Luna is like a person trying to step on their left and right foot at the same time:

When the demand for UST increases, the system destroys Luna to create UST, driving up the price of Luna; while when UST is sold off, the system must issue more Luna to maintain the UST price, leading to Luna depreciation. This mechanism seems perfect during a positive cycle, but once reversed, it can form an irreversible “death spiral.”

On May 8, 2022, when a certain whale sold $84 million worth of UST, causing UST to depeg to $0.95, panic spread like wildfire. The Terra Foundation attempted to stabilize the situation by selling Bitcoin reserves, but this only accelerated the collapse of the entire market.

High-Yield Trap: The 20% Annualized Return Scam of Anchor

I have always believed that the 19.8% annualized return of the Anchor protocol is clearly a Ponzi scheme. Any basic financial knowledge tells us that stable and sustainable investments cannot provide such high returns for a long time.

It has been proven that Anchor loses over 4 million dollars every day, completely relying on continuous funding from Terra to maintain operations. This “rolling over old debts” model is destined to collapse; it's just a matter of time.

Founder Do Kwon: From “Korea's Elon Musk” to International Fugitive

Do Kwon, who was once referred to by fans as the “Korean Musk,” is now an internationally wanted criminal. He once arrogantly mocked his critics but attempted to save UST by increasing the supply of Luna after the project collapsed, ultimately leading to Luna's inflation to trillions and its complete devaluation.

The founder's criminal record (Basic Cash project going to zero) should have been a warning, but during the frenzy of the bull market, few were willing to heed the caution.

Bloody Lessons

The collapse of Luna left us with several profound lessons:

1. Algorithmic stablecoins are essentially “printing money diluting value”; their design flaw is that they cannot save themselves in times of crisis.
2. Beware of promises of extremely high returns; projects with annualized returns exceeding 10% often hide a Ponzi structure.
3. Never let the FOMO sentiment on social media compel you to bottom-fish collapsing assets.

The tragedy of Luna is not the first, and it will certainly not be the last. In this industry, we must always remain vigilant, as history always repeats itself in different forms.

Do you think the collapse of Luna was an accidental event or an inevitable outcome? Feel free to leave a message to share your views.