Terra Luna Crash: How $40 Billion Vanished in the Worst Crypto Collapse

Jun 10, 2025 · 13 min read

In May 2022, over $40 billion in market value was destroyed as UST lost its dollar peg and LUNA plummeted from $119 to near zero. The crash wiped out life savings, triggered a domino effect across crypto, and led to Do Kwon's arrest.

The Terra Ecosystem

UST was an algorithmic stablecoin using a mint/burn mechanism with LUNA. To mint 1 UST, burn $1 of LUNA. To redeem, burn UST for LUNA. Arbitrage was supposed to maintain the peg.

The 20% APY Trap: Anchor Protocol

Anchor Protocol offered ~20% APY on UST deposits — unsustainable. It held $14B (75% of all UST). Terraform Labs subsidized the rate. Analysts warned. Do Kwon dismissed critics, calling them “poor.”

The Death Spiral: May 7-13, 2022

May 7: $2B withdrawn from Anchor. UST slips to $0.985. May 9: UST at $0.69. LUNA supply explodes. May 10-11: LUNA from $30 to $0.01. May 13: LUNA at $0.00001. UST at $0.15. $40 billion destroyed.

Do Kwon: Celebrity to Fugitive

Arrested in Montenegro March 2023 with fake passports. Extradited to the US in 2024. SEC won civil fraud case — $4.47 billion penalty.

Red Flags

1. Unsustainable 20% yields. 2. No dollar reserves. 3. 75% concentration in Anchor. 4. Aggressive, dismissive founder. 5. Circular economics.