The Day UST Collapsed

Is the Terra Luna collapse the biggest disaster in cryptocurrency history?

UST fell off its 1 to 1 dollar peg. Coinmarketcap.

On the 9th of May, the stablecoin UST has fallen off its 1 to 1 dollar peg and has since crashed to 18 cents as of writing this story. Even worse is the collapse of its sister coin Luna, which is normally supposed to stabilize the price of UST. It has basically lost all of its value when it fell from around 80$ to something like 0.0001$ today.

There are many examples of failed crypto projects like BitConnect or Titan with its Iron stablecoin, but the combined UST and Luna market cap of around 37 billion dollars prior to the crash makes the Terra Luna collapse by far the biggest in terms of scale, and many investors (myself included) are affected.

The worst part about this disaster is the fact that UST was a stablecoin. If you invest money in a free-floating coin like Bitcoin, Dogecoin, or Luna, you are aware of the risk that it can fall significantly. However, many people saw UST as a safe haven in the volatile world of crypto and had a lot of money invested to benefit from the high returns of the Anchor protocol.

What happened?

UST or TerraUSD is a stablecoin on the Terra blockchain. Unlike other stablecoins like GUSD or USDC that are backed by real dollars, UST is an algorithmic stablecoin, which means that an algorithm mints and burns (creates and destroys) both UST and Luna to keep the price of UST at its 1 dollar peg. Most of the time, the system works. There have been a few situations in the past when during a massive drop in the crypto markets, UST and other stablecoins have briefly fallen off their peg. Last weekend, the whole crypto market had a massive selloff again, so when UST lost its peg, most people assumed it would regain it within a few days at most and many even bought more UST at discounted rates to profit when it went back to 1 dollar. Instead, it has fallen even further and wiped out billions of dollars.

As with anything, there are a lot of conspiracy theories floating around as to what caused the collapse. Some people claimed that the investment giants BlackRock and Citadel borrowed 100,000 BTC from Gemini to crash the price of Bitcoin and attack UST, but all parties have denied any involvement. Another…