The Rise and Fall of Terra: What Happened to LUNA and UST

In the cryptocurrency ecosystem, nothing is stable or permanent. Some projects start quietly but then grow exponentially, while others are developed with fanfare only to fizzle out quickly. A prime example is Terra, a project once hailed as the revolution of decentralized finance (DeFi). However, the crash in 2022 caused Terra to evaporate over 40 billion USD, making it one of the largest collapses in cryptocurrency history. The story of Terra is not just a warning but also a significant turning point for the entire digital financial market.

1. The Birth of Terra: Belief in a Stable Ecosystem The Terra project was launched in 2018 by Do Kwon and Daniel Shin through Terraform Labs. Their ambition is to build a global payment ecosystem based on decentralized stablecoins. At the center of the system is TerraUSD (UST) – a stablecoin pegged to the USD but not backed by real assets like USDT or USDC. Instead, UST is maintained through the mint–burn mechanism ( minting and burning ) linked to the LUNA token. Users can swap 1 USD LUNA to mint 1 UST and vice versa. When the price of UST is higher than 1 USD, users will profit by minting UST and selling it; when UST is below 1 USD, they will burn UST to receive LUNA at a lower price – thus the arbitrage mechanism will keep UST stable around the 1 USD mark.
2. Crack Appears: The Fragile Financial Machine Although the Terra ecosystem is rapidly developing and attracting a large amount of capital, experts have early warned that this model is unsustainable. In particular, the Anchor Protocol offers yields of up to 20% per year for UST depositors – an attractive but unrealistic figure that cannot be sustained in the long term. In May 2022, a large amount of UST was withdrawn from Anchor and sold off on exchanges like Curve and Binance. This caused UST to lose its peg (, devaluing against USD). Investors panicked and rushed to burn UST for LUNA, leading the system to print a huge amount of LUNA, resulting in hyperinflation. Within just a few days, the price of LUNA fell from over 80 USD to nearly worthless, causing the entire ecosystem to collapse in a domino effect.
3. The Horrible Consequences After the Collapse The aftermath of the crash resulted in millions of investors losing everything, many of whom had invested all their savings into the Terra system. Over 1,600 individuals have filed lawsuits against Do Kwon. In March 2023, Do Kwon was arrested in Montenegro while attempting to fly to Dubai using a fake passport. By the end of 2024, he was extradited to the US and faced a series of charges, including securities fraud, commodity fraud, telecommunications fraud, and conspiracy. Although Do Kwon pleaded not guilty, a jury concluded that he was guilty of fraud. The U.S. Securities and Exchange Commission (SEC) also accused Terraform Labs of spreading false information to inflate the price of UST, including secretly hiring a third party to buy UST to create a sense of real demand. Terraform later agreed to a civil settlement with the SEC with a penalty of up to 4.47 billion USD.
4. Terra 2.0: A Desperate Effort to Revive Immediately after the collapse, Terraform Labs announced a plan to restart the blockchain called Terra 2.0, separate from the old system and no longer featuring the stablecoin UST. The old chain was renamed Terra Classic, the old LUNA coin became LUNC, while Terra 2.0 retained the name LUNA for the new version. Although there is a new LUNA token airdrop program for old investors, the community has become severely divided. Many developers and users have left Terra to move to other blockchains such as Ethereum, Solana, or Cosmos.
5. Do Kwon – From "King of Lunatics" to a Warning Symbol Do Kwon – full name Kwon Do-Hyung, is a software engineer who graduated from Stanford University and worked at Google and Apple. In 2016, he founded the startup Anyfi, then together with Daniel Shin created Terraform Labs in 2018. Kwon was once revered in the community with the nickname "King of the Lunatics" when the LUNA coin peaked at nearly 120 USD in March 2022. However, just a few months later, he became a symbol of collapse, with arrogant statements and irresponsible management exposed under the scrutiny of legal and global media.
6. Valuable Lessons from Terra Algorithmic stablecoins without collateralized assets are extremely risky, especially in high market volatility conditions. High yields do not equate to safety. Anchor with a 20% interest rate is merely a "sweet trap" that blinds investors. Lack of application diversity: when the entire ecosystem relies on Anchor, its collapse brings down the whole system. Lack of transparency and legal oversight: Projects operating in a murky manner, ignoring financial regulations have led to serious consequences. The damage to investors is real: Many have lost all their assets, suffering deeply both mentally and financially.
7. Conclusion: An Era Ends – A Lesson Unfolds The story of Terra is a reminder that in the world of cryptocurrency, trust alone is not enough. Unsound financial models, overly reliant on theory or algorithms, will not stand firm against market realities. The failure of Terra was not just a technical error – it was the result of human behavior, blind trust, and the misguided belief that DeFi could operate without oversight. As the market continues to evolve, Terra serves as a costly lesson for all: from developers and investors to policymakers. If cryptocurrency wants to go far, it needs to be built on a foundation of transparency, good risk management, and solid knowledge – rather than empty promises. "No blockchain is too big to fail, and no project is immune to greed." – A lesson that cannot be forgotten from Terra.