TerraUSD algorithmic stablecoin collapses
The TerraUSD algorithmic stablecoin collapsed, wiping out USD 55 billion of market capitalisation and leaving investors out of pocket. It remains unclear what precipitated the collapse, with some blaming an acceleration of customer withdrawals spiralling into a de facto bank run, thereby destabilising the algorithmic balancing mechanism between TerraUSD and LUNA. Attempts by TerraLabs to save UST’s peg by selling almost all of its Bitcoin reserves for UST, as well as other strategies, failed to save the stablecoin. Other cryptocurrencies are tied to more stable assets, such as the US dollar or gold. The crisis fueled a credit crunch that saw hedge fund Three Arrows Capital ( 3AC) forced into liquidation, and cr yptocurrency lender Celsius Network and crypto broker Voyager Digital filing for Chapter 11 bankruptcy. At the time of its collapse, TerraUSD had been the third largest stablecoin by market capitalisation , and Luna one of the ten largest cryptocurrencies. ➕ February 2023. the US Securities and Exchange Commission (SEC) charged (pdf) Terraform Labs Do Kwon with fraud. TerraUSD (also known as UST) is an algorithmic stablecoin created in 2018 by Terraform Labs that is built on the Terra blockchain. Pegged to the US dollar through a complex algorithmic relationship with its support cryptocurrency coin LUNA, TerraUSD can be exchanged with LUNA tokens. Per The Register , UST and Luna are linked by an algorithm in a 'smart contract' that's supposed to keep the value of the UST pegged to 1 USD without fiat currency reserves. The algorithm burns or deletes Luna tokens to create new UST tokens and vice versa in an effort to balance supply and demand. System 🤖 https://www.terra.money/ 🔗 Documents 📃 https://medium.com/terra-money/announcing-terrausd-ust-the-interchain-stablecoin-53eab0f8f0ac https://www.youtube.com/watch?v=KqpGMoYZMhY Operator: Terraform Labs Developer: Terraform Labs Country: Singapore; Global Sector: Banking/financial services Purpose: Manage financial marketplace Technology: Smart contract algorithm Issue: Robustness Investigations, assessments, audits 🧐 https://www.nytimes.com/2022/12/07/business/ftx-sbf-crypto-market-investigation.html Legal, regulatory 👩🏼⚖️ https://www.pacermonitor.com/public/case/44953421/Patterson_v_TerraForm_Labs_Pte_Ltd_et_al https://www.sec.gov/litigation/complaints/2023/comp-pr2023-32.pdf
- Date it happened
- 2022-05-01
- Organisation involved
- Terraform Labs
- Product, system or model
- Terra; TerraUSD; LUNA
This incident was imported from AIAAIC and is used under CC BY-SA 4.0. Our additions to it — the structured fields, the translation, the checks against other reports — are published under the same licence.
This is a record of what was reported, not a finding that anyone broke the law. If it names your organisation and you believe it is wrong, the corrections process is free and open to everyone.