2 Years Ago Today: Terra (LUNA) Plummeted 99.999% in Value — A Cautionary Tale for Altcoin Investors
It was a day etched in infamy for the cryptocurrency market. The downfall of Terra’s LUNA cryptocurrency began in the second week of May 2022 and culminated on May 15th, as the coin hemorrhaged a staggering 99.999% of its worth, plummeting from $100 just a week earlier to less than $0.002 by day’s end.
Let’s recap the events of that fateful week:
This catastrophic crash left in its wake an army of investors clutching worthless LUNA tokens. Altogether, losses on this coin were estimated to exceed $7 billion.
Why did LUNA Collapse?
The value of LUNA was tied to the fluctuations of Terra’s algorithmic stablecoin, US Terra (UST), utilizing LUNA’s liquidity. In retrospect, the idea that a volatile cryptocurrency devoid of any practical purpose could stabilize a stablecoin was clearly flawed. UST, too, lacked any tangible backing.
When UST experienced a 40% loss in value, LUNA plunged into an abyss from which it has yet to recover. A few bear market traders managed to profit from LUNA’s wild swings (now rebranded as LUNC), but for the majority, the scene was grim, with reports of investors losing substantial amounts, including their life savings, on this digital token.
What Happened to Terra’s Founder?
Do Kwon, the South Korean visionary behind the Terra project, promptly evaded authorities and remained a fugitive for several months. Eventually, he was apprehended at an international airport in Montenegro, triggering an extradition battle between South Korea and the United States, both seeking justice for his financial misdeeds. Ultimately, it was determined he would be returned to his home country, where he now faces significant jail time.
Prior to his arrest, Kwon attempted to salvage the token project’s reputation by launching another cryptocurrency to compensate those affected. This new coin retained the name LUNA, while the original one was rebranded as LUNC. Nevertheless, neither effort managed to salvage the doomed coin, leaving both variants practically worthless.
The Aftermath
The LUNA saga served as a stark reminder of the fragility of the altcoin market. While Bitcoin has largely maintained stability, altcoins have exhibited a mixed bag of outcomes, with many falling by the wayside. In the same year, LUNA’s setback was overshadowed by the FTX exchange scandal, an even more egregious fraud. Do Kwon and former FTX CEO Sam Bankman-Fried have since become public enemies no.1 and 2 within crypto circles.
This incident serves as a stark warning for investors considering ventures into the risky world of altcoins. Caution and careful consideration are paramount.