Terra/LUNA

Thesis

Terra/LUNA is the canonical example of algorithmic stablecoin failure. The UST depeg in May 2022 destroyed $40B in value and triggered cascading failures that brought down Three Arrows Capital, Celsius, Voyager, and BlockFi. The 'death spiral' mechanism. Where UST redemptions minted LUNA, crashing LUNA's price, which further undermined UST confidence. Was a design flaw that critics had warned about for years. Do Kwon was arrested in Montenegro in March 2023 and extradited. The SEC charged Terraform Labs with fraud, and a jury found them liable. The LUNA 2.0 relaunch has failed to gain meaningful traction. This entry exists as a graveyard reminder. Algorithmic stablecoins without exogenous collateral are fundamentally fragile. Any new project proposing similar mechanisms should be evaluated against the Terra template. The warning signs were clear, including dismissal of critics, reflexive tokenomics, unsustainable yields (Anchor's 20%). Are now canonical red flags. Key lesson. When the 'working code' is the vulnerability, and the community is an echo chamber rather than a quality filter, the 8-signal framework fails. Community conviction was a contra-indicator, not a positive signal.

Catalysts

• +No active catalysts. Project is effectively dead
• +LUNA 2.0 exists but has failed to gain meaningful traction
• +Legal proceedings ongoing against Do Kwon and Terraform Labs

Risks

• -Project is dead. Total loss for most investors
• -Algorithmic stablecoin design was fundamentally flawed
• -Legal proceedings and regulatory action ongoing
• -Reputational contagion affected entire stablecoin category

Common questions