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Difference between revisions of "LUNA Collapse in May 2022"
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To alleviate concerns about a death spiral, the Terra foundation purchased several billion dollars of Bitcoin that could be used to help stabilize the peg in case of pressure on UST and LUNA.<ref>https://dashboard.lfg.org/</ref> | To alleviate concerns about a death spiral, the Terra foundation purchased several billion dollars of Bitcoin that could be used to help stabilize the peg in case of pressure on UST and LUNA.<ref>https://dashboard.lfg.org/</ref> | ||
== Initial depeg == | == Timeline == | ||
=== Initial depeg === | |||
Over the 7th of May, 9 figures of liquidity was removed from the [[Curve Finance]] pool resulting in widespread panic and a depeg of around 2% which was quickly brought under control. Do Kwon implied on Twitter<ref>https://twitter.com/CaetanoManfrini/status/1523145923571814400</ref> there had been a coordinated attack to create panic and destabilize the peg by simultaneously removing funds from [[Anchor]] and Curve Finance. The Luna Guard Foundation also announced it had loaned $1.5b as an additional effort to protect UST.<ref>https://twitter.com/LFG_org/status/1523512201088143360</ref> | Over the 7th of May, 9 figures of liquidity was removed from the [[Curve Finance]] pool resulting in widespread panic and a depeg of around 2% which was quickly brought under control. Do Kwon implied on Twitter<ref>https://twitter.com/CaetanoManfrini/status/1523145923571814400</ref> there had been a coordinated attack to create panic and destabilize the peg by simultaneously removing funds from [[Anchor]] and Curve Finance. The Luna Guard Foundation also announced it had loaned $1.5b as an additional effort to protect UST.<ref>https://twitter.com/LFG_org/status/1523512201088143360</ref> | ||
== Rescue efforts and second depeg == | ==== Rescue efforts and second depeg ==== | ||
As concern for a death spiral kept mounting, The Block reported that the Luna Foundation Guard was raising over $1b to prevent any further damages.<ref>https://www.theblockcrypto.com/post/145978/luna-foundation-guard-seeks-more-than-1-billion-to-shore-up-ust-stablecoin-sources</ref> The deal would allow several large investment firms to purchase discounted and locked LUNA tokens. | As concern for a death spiral kept mounting, The Block reported that the Luna Foundation Guard was raising over $1b to prevent any further damages.<ref>https://www.theblockcrypto.com/post/145978/luna-foundation-guard-seeks-more-than-1-billion-to-shore-up-ust-stablecoin-sources</ref> The deal would allow several large investment firms to purchase discounted and locked LUNA tokens. | ||
[[File:Binance UST-USDT Chart.png|thumb|Binance UST Chart]] | [[File:Binance UST-USDT Chart.png|thumb|Binance UST Chart]] | ||
When the price of LUNA kept declining, rumors spread that the deal had fallen apart and that the bailout would not be coming after all and UST further declined to a low of $0.22. LUNA also fell by over 90% to a low of $0.69. | When the price of LUNA kept declining, rumors spread that the deal had fallen apart and that the bailout would not be coming after all and UST further declined to a low of $0.22. LUNA also fell by over 90% to a low of $0.69. | ||
Do Kwon tweeted that Terra would increase the redemption capacity of UST to allow the peg to stabilize quicker.<ref>https://twitter.com/stablekwon/status/1524331171189956609</ref> This would result in more LUNA being in circulation, with some crypto twitter users estimating a 6x increase in circulating supply.<ref>https://twitter.com/pythianism/status/1524432742892507136</ref> From May 11th to 12th, it resulted in LUNA’s supply increasing from 1.5 billion tokens to 163 billion tokens.<ref name=":0" /> On May 12th, LUNA hit a low of $0.00079. | |||
Do Kwon tweeted that Terra would increase the redemption capacity of UST to allow the peg to stabilize quicker.<ref>https://twitter.com/stablekwon/status/1524331171189956609</ref> This would result in more LUNA being in circulation, with some crypto twitter users estimating a 6x increase in circulating supply.<ref>https://twitter.com/pythianism/status/1524432742892507136</ref> From May 11th to 12th, it | |||
On May 13th, Do Kwon released a Terra Ecosystem Revival Plan on the Terra forum.<ref>https://agora.terra.money/t/terra-ecosystem-revival-plan/8701</ref> If approved, this proposal would reset the network ownership to 1B tokens and have a new distribution plan. | On May 13th, Do Kwon released a Terra Ecosystem Revival Plan on the Terra forum.<ref>https://agora.terra.money/t/terra-ecosystem-revival-plan/8701</ref> If approved, this proposal would reset the network ownership to 1B tokens and have a new distribution plan. | ||
On May 14th, LUNA rebounded over 1,500% from lows and overtook UST market cap for the first time since the beginning of the depegging event. | On May 14th, LUNA rebounded over 1,500% from lows and overtook UST market cap for the first time since the beginning of the depegging event. Terra announced over Twitter that a post mortem report would be coming as soon as possible.<ref>https://twitter.com/terra_money/status/1525226016972582912?s=21</ref> | ||
Terra announced over Twitter that a post mortem report would be coming as soon as possible.<ref>https://twitter.com/terra_money/status/1525226016972582912?s=21</ref> | |||
On May 16th, the Luna Foundation Guard released a Twitter thread detailing how they sold over $3b in assets to defend the UST peg.<ref>https://twitter.com/lfg_org/status/1526126703046582272?s=21</ref> | On May 16th, the Luna Foundation Guard released a Twitter thread detailing how they sold over $3b in assets to defend the UST peg.<ref>https://twitter.com/lfg_org/status/1526126703046582272?s=21</ref> | ||
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== Aftermath == | == Aftermath == | ||
US Treasury Secretary Janet Yellen mentioned the depeg event to suggest the need for further regulation of stablecoins.<ref>https://www.coindesk.com/policy/2022/05/11/ust-meltdown-hasnt-spurred-us-financial-stability-council-meeting-sources/</ref> | US Treasury Secretary Janet Yellen mentioned the depeg event to suggest the need for further regulation of stablecoins.<ref>https://www.coindesk.com/policy/2022/05/11/ust-meltdown-hasnt-spurred-us-financial-stability-council-meeting-sources/</ref> | ||
Citadel and BlackRock denied involvement in the attack against Luna after rumors surfaced on Twitter that the two firms were involved in the attack.<ref>https://www.bloomberg.com/news/articles/2022-05-11/citadel-securities-says-not-involved-in-terra-stablecoin-crash</ref> | |||
TVL for the entire DeFi industry declined by over 50%. From May 7th to May 11th, Anchor’s UST deposits depleted from $17b to $2.6b.<ref>https://defillama.com/protocol/anchor#</ref> | Terra TVL went from $35b to less than $3b in five days.<ref>https://defillama.com/chain/Terra</ref> TVL for the entire DeFi industry declined by over 50%. From May 7th to May 11th, Anchor’s UST deposits depleted from $17b to $2.6b.<ref>https://defillama.com/protocol/anchor#</ref> | ||
As wider concerns for the health of stablecoins spread in the markets, Curve Finance saw a lot of traders swapping away from Tether's USDT. Another algorithmic stablecoin called USDN also fell to as low as $0.78.<ref>https://blockworks.co/how-will-ust-crash-impact-other-stablecoins/</ref> | As wider concerns for the health of stablecoins spread in the markets, Curve Finance saw a lot of traders swapping away from Tether's USDT, which made the stablecoin drop slightly to $0.95.<ref>https://cryptobriefing.com/tethers-usdt-stablecoin-loses-peg-amid-ust-disaster/</ref> Another algorithmic stablecoin called USDN also fell to as low as $0.78.<ref>https://blockworks.co/how-will-ust-crash-impact-other-stablecoins/</ref> | ||
Crypto markets also declined by over 20% with some currencies tied to the Terra ecosystem falling by over 60% in two days.<ref>https://decrypt.co/100102/not-just-terra-apecoin-avalanche-solana-shiba-inu-all-down-at-least-20-in-crypto-crash</ref> | Crypto markets also declined by over 20% with some currencies tied to the Terra ecosystem falling by over 60% in two days.<ref>https://decrypt.co/100102/not-just-terra-apecoin-avalanche-solana-shiba-inu-all-down-at-least-20-in-crypto-crash</ref> | ||
It was revealed that Do Kwon was the founder of a | It was revealed that Do Kwon was the founder of a previously failed stablecoin project, [[Basis Cash]].<ref>https://www.coindesk.com/tech/2022/05/11/usts-do-kwon-was-behind-earlier-failed-stablecoin-ex-terra-colleagues-say/</ref> | ||
From May 9th to the 12th, LUNA supply has increased 35,000% as that is part of the mechanism to restore peg to UST.<ref name=":0">https://messari.io/asset/terra/chart/sply-circ</ref> | |||
After patching the code and disabling validators, Terra blockchain resumed block production.<ref>https://twitter.com/terra_money/status/1524812171179327488</ref> | Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack. Terra blockchain was officially halted at a block height of 7603700.<ref>https://twitter.com/terra_money/status/1524785058296778752</ref>After patching the code and disabling validators, Terra blockchain resumed block production.<ref>https://twitter.com/terra_money/status/1524812171179327488</ref> | ||
An investor who lost over $2m visited Do Kwon’s house and left after questioning Do’s wife for his whereabouts.<ref>https://watcher.guru/news/suspect-who-invaded-terra-founder-do-kwons-home-reveals-his-motive?c=410</ref> | An investor who lost over $2m visited Do Kwon’s house and left after questioning Do’s wife for his whereabouts.<ref>https://watcher.guru/news/suspect-who-invaded-terra-founder-do-kwons-home-reveals-his-motive?c=410</ref> | ||
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South Korea’s government is seeking a $78.5m tax payment from Terraform Labs/Do Kwon.<ref name=":2" /> | South Korea’s government is seeking a $78.5m tax payment from Terraform Labs/Do Kwon.<ref name=":2" /> | ||
== | === Firm losses === | ||
Several | Several investment firms and venture capital funds suffered large losses. The exact amounts are difficult to verify. | ||
* Arca - Published investor letter in May 2022, describing the de-peg as a buying opportunity.<ref>https://www.coindesk.com/business/2022/05/11/crypto-fund-arca-doubled-down-on-ust-amid-stablecoins-collapse/</ref> | * Arca - Published investor letter in May 2022, describing the de-peg as a buying opportunity.<ref>https://www.coindesk.com/business/2022/05/11/crypto-fund-arca-doubled-down-on-ust-amid-stablecoins-collapse/</ref> | ||