I just came across a pretty shocking story. A 35-year-old programmer went through the darkest week of his life in the crypto world—nearly 10 million yuan in assets almost vanished in just 3 days. He took leave from work, couldn’t sleep every day, and could only eat under his wife’s forced insistence. Staring at his phone screen, he watched Luna tumble from $50, $20, $1 all the way down to $0.00000112… This “star coin,” once ranked No. 4 by market cap, created countless people’s wealth dreams in 2021, yet in just a few days, the numbers across all accounts evaporated.

Behind it is a very interesting mechanism. Luna and UST are a pair of twin brothers, kept in balance through algorithmic design. UST is a stablecoin with no asset collateral at all; it maintains the $1 price by relying on a two-way minting and burning relationship with Luna. As long as Luna holds its value, UST can remain stable; once Luna collapses, the entire ecosystem falls into an irreversible death spiral.

On May 8, big institutions began deliberately dumping UST, breaking the supply-and-demand balance. UST decoupled from the dollar. People, in panic, exchanged UST for Luna, causing Luna to surge and its price to plunge. Once this deadly death spiral starts, it can never be stopped. Some say algorithmic stablecoins are basically a “step on the right foot with the left foot” kind of game—inflate a big bubble, and the moment it’s touched, it bursts.

What’s interesting is that during the crisis, some people still made a fortune. Those shorting, those trying to pick bottoms, and those doing brick-arbitrage across exchanges—all of them profited handsomely from this crash. A young man in Guangzhou who did wholesale women’s clothing noticed on-chain Luna kept being minted and decided to short it. In the end, he made $40,000. Others also profited by trading the price differences between exchanges, turning $2,000 into 25 million yuan. The ones who lose money are “eight,” the ones who make money are “two”—and this rule still holds in the crypto world.

But for those who were deeply involved, this crash meant a complete loss of confidence. That programmer used to be a die-hard fan of the Terra ecosystem. He even took part in efforts to save Terra, putting up 30,000 UST to buy derivatives that had been liquidated, trying to slow down the sell pressure. But all of it was just pouring water into a sieve. When the new Luna launched on May 28, the old holders’ reaction was immediate selling. No one believed in the project anymore.

Looking back afterward, many people realized that algorithmic stablecoins might be a false proposition in the first place. If traditional finance hasn’t solved the death spiral problem yet, how could blockchain possibly solve it? Later, that programmer gained a deeper understanding of what a Ponzi scheme is—most blockchain projects have used Ponzi-style designs, which can only be used as short-term growth tools, and ultimately they must find a stable, non-Ponzi profit model. Terra failed to find one.

Most ironically, after Luna surged over 1,000 times from the bottom, it attracted another batch of investors from outside the circle to jump in. Someone spent $80 to buy more than 200,000 Luna, fantasizing that it would rise back to $120. But when she realized there was no further upside for the old Luna, which had been renamed Lunc and handed over for community management, she finally understood she had been trapped. The market maker would never choose a coin like this—one that’s already so heavily shorted—to pull the price up; once it starts rising, people will dump, and the price can’t be pushed any higher. When rationality returns, the wealth-making bubble gets punctured instantly.