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Luna Coin Algorithmic Stablecoin Crash Case.
Luna Coin and the stablecoin UST both belong to the Terraform Labs project, relying on an algorithmic peg mechanism to maintain a 1 UST to 1 USD ratio, with no physical assets backing it, effectively building a Ponzi scheme with high yields.
The project launched a decentralized finance platform called Anchor, offering a 20% annualized return on UST deposits, attracting over 10 billion USD in a short period, causing the price of Luna Coin to soar to nearly 90 USD, positioning its market value among the top ten cryptocurrencies.
In May 2022, market panic triggered a massive sell-off of UST, overwhelming the algorithmic adjustment mechanism, causing the UST price to decouple and fall below 0.9 USD. Investors frantically burned UST to exchange for Luna, leading to the supply of Luna skyrocketing from 300 million to 60 trillion within 48 hours, causing the price to plummet to near zero, and UST also significantly devalued.
This crash affected millions of investors worldwide, with retail investors losing over 20 billion USD, the overall market value of the cryptocurrency sector evaporating by over 300 billion USD in a single day, multiple platforms collapsing due to bank runs, and the project founder being arrested after fleeing with funds, marking the most disastrous algorithmic stablecoin crisis in cryptocurrency history.
Luna Coin and the stablecoin UST both belong to the Terraform Labs project, relying on an algorithmic peg mechanism to maintain a 1 UST to 1 USD ratio, with no physical assets backing it, effectively building a Ponzi scheme with high yields.
The project launched a decentralized finance platform called Anchor, offering a 20% annualized return on UST deposits, attracting over 10 billion USD in a short period, causing the price of Luna Coin to soar to nearly 90 USD, positioning its market value among the top ten cryptocurrencies.
In May 2022, market panic triggered a massive sell-off of UST, overwhelming the algorithmic adjustment mechanism, causing the UST price to decouple and fall below 0.9 USD. Investors frantically burned UST to exchange for Luna, leading to the supply of Luna skyrocketing from 300 million to 60 trillion within 48 hours, causing the price to plummet to near zero, and UST also significantly devalued.
This crash affected millions of investors worldwide, with retail investors losing over 20 billion USD, the overall market value of the cryptocurrency sector evaporating by over 300 billion USD in a single day, multiple platforms collapsing due to bank runs, and the project founder being arrested after fleeing with funds, marking the most disastrous algorithmic stablecoin crisis in cryptocurrency history.
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