How TerraUSD lost its peg

UST was meant to hold $1 with no reserve behind it: the chain would always swap one UST for $1 of freshly minted LUNA. That works while people value LUNA. In May 2022 they stopped, and both collapsed together. What's left trades today as USTC, far from $1.

Read what happened

Click a step on the right, or use the arrow keys, to jump to it. The steps are an illustration; the dated figures are real.

Supply readings, every 30 seconds

    UST (USTC) LUNA (LUNC) tokens being burned LFG's bitcoin reserve other stablecoins in the Curve pool Terra Classic, columbus-5
    Prices illustrative
    How this is read

    USTC and LUNC prices from CoinGecko's public API, refreshed every 90 seconds. The scale is logarithmic: each step to the right is ten times the price. $1 marks where UST was meant to stay.

    UST and LUNA prices
    TokenPriceNote
    May 2022, day by day
    • UST, $0 to $1
    • LUNA, log scale
    • USTC supply
    • burned in each period

    Use the left and right arrow keys to read each point.

    Daily closing prices, May 2022, or USTC supply over recent days
    WhenUST / USTCLUNA / change
    What just happened (illustrative) 0 UST supply 0 UST price 0 LUNA supply 0 LUNA price 0 BTC held by LFG

      What happened, and why the backing matters

      An algorithmic stablecoin

      TerraUSD (UST) was issued by the Terra blockchain itself, not by a company holding dollars. Terraform Labs, co-founded by Do Kwon and Daniel Shin, built the chain; LUNA was its staking and governance token. Nothing in a bank backed UST. Its dollar value came from a promise written into the chain: one UST can always be swapped for one dollar's worth of LUNA.

      Compare USDC, where every token is matched by a dollar or a Treasury bill held by the issuer and examined monthly. A fiat-backed coin fails if the assets are missing. UST could fail even with every rule working, if LUNA lost its value faster than UST was redeemed.

      The market module

      Terra's on-chain market module swapped between LUNA and Terra's stablecoins at the exchange rate its validators reported through an oracle. To mint 1 UST you burned $1 of LUNA; to redeem 1 UST you burned it and received $1 of newly minted LUNA. A spread and a pool limit capped how much could be swapped at once, so a run was spread over days rather than stopped.

      The peg therefore depended on LUNA's market value staying well above the value of all UST. When UST fell below $1, redemptions minted LUNA; if LUNA holders sold that LUNA, its price fell, and the next redemption minted more. That feedback loop is what people call a death spiral.

      Anchor and the reserve

      Anchor Protocol, a lending app on Terra launched by Terraform Labs, paid a nearly fixed yield of about 19.5 % a year on UST deposits, more than its borrowers paid in, with the gap covered from a yield reserve. By May 2022 most UST in existence sat in Anchor. Critics warned the yield was subsidised and could not last; when deposits left, so did most of the reason to hold UST.

      From January 2022 the Luna Foundation Guard (LFG), a Singapore non-profit, built a reserve to defend the peg. On May 7, 2022 it held 80,394 BTC along with other tokens. An audit it commissioned from J.S. Held later found it had spent about $2.8 billion, 80,081 BTC and 49.8 M in stablecoins, trying to hold UST at $1 between May 8 and May 12. By May 16 it had 313 BTC left.

      Sources: Wikipedia, Terra (blockchain); CoinDesk, May 16, 2022; CryptoSlate on the J.S. Held report, November 2022.

      The collapse, day by day

      On May 7, 2022 Terraform Labs withdrew 150 M UST from UST's main Curve pool on Ethereum, ahead of a planned new pool; minutes later one wallet sold 85 M UST into it, and other large sales followed. The pool paired UST with USDC, USDT and DAI, so the selling left it mostly UST and pushed the price down. Deposits started to leave Anchor. By the close of May 9 (UTC) UST traded at $0.75 on Binance and LUNA had fallen from about $64 to $30.

      Daily closing prices on Binance, May 2022, UTC
      Close, UTCUSTLUNA

      Redemptions minted LUNA on a scale nobody had planned for: its supply rose from roughly 350 million to about 6.5 trillion in five days, and its price from $30 to under a hundredth of a cent. The Terra chain was halted at block 7,603,700 on May 12, restarted, and halted again on May 13. About $40 billion of value was lost, the figure US prosecutors later used.

      Prices are Binance's daily UST/USDT and LUNA/USDT closes (UTC); trading stopped early on May 13. Sources: Jump Crypto, The Depegging of UST; Coinpaprika post-mortem; Terra on the halt.

      Terra 2.0 and Terra Classic

      On May 25, 2022 governance approved a new chain without UST. Its first block, chain id phoenix-1, was produced on May 28, 2022, and its new LUNA was airdropped to holders of the old tokens. The original chain, columbus-5, kept running as Terra Classic; its LUNA became LUNC and UST became USTC. In late May 2022 governance also voted to burn about 1.38 billion USTC held in the community pool.

      Terra Classic's validators and community still run it. Since September 2022 a tax on on-chain LUNC and USTC transfers, part of which is burned, has slowly shrunk both supplies; live mode reads the current rate. The market module's swap is switched off: its minimum spread is set to 100 %, so a swap quote returns nothing. Proposals to restore a peg have been discussed for years; none has, and USTC trades at well under a cent.

      Sources: BeInCrypto, May 28, 2022; Yahoo Finance, May 26, 2022; Binance on the burn tax, September 2022; on-chain parameters read from a public Terra Classic node.

      The courts

      Terraform Labs filed for Chapter 11 bankruptcy in the US on January 21, 2024. In April 2024 a New York jury found Terraform and Kwon liable for fraud in a civil case brought by the SEC, and in June 2024 they agreed to pay about $4.47 billion, $4.05 billion of it disgorgement and interest and a $420 million penalty; Kwon personally agreed to pay $204.3 million. Terraform wound down under a bankruptcy plan. Jump Trading's Tai Mo Shan agreed in December 2024 to pay $123 million to settle SEC claims that it misled investors about UST's stability.

      Kwon was arrested on March 23, 2023 at Podgorica airport in Montenegro, travelling on a false passport. After a long fight between the US and South Korea over extradition, Montenegro handed him to US authorities on December 31, 2024. On August 12, 2025 he pleaded guilty in Manhattan to conspiracy to defraud and wire fraud, admitting he had misled buyers of UST, and agreed to forfeit about $19 million. On December 11, 2025 Judge Paul Engelmayer sentenced him to 15 years in prison. He may still face trial in South Korea.

      Sources: SEC press release 2024-73; Bloomberg, June 12, 2024; The Block, December 31, 2024; CoinDesk, August 12, 2025; US Attorney, SDNY, December 2025.

      What live mode shows

      "USTC today" reads Terra Classic (columbus-5) directly from public nodes (terra-classic-lcd.publicnode.com, with Hexxagon's node as a fallback): the total supply of USTC and LUNC every 30 seconds, the burn tax rate and whether the market swap is enabled. It reads the USTC supply at earlier block heights to chart the last few days, since Hexxagon's node keeps about a week of history. Prices come from CoinGecko's public API every 90 seconds. The step-by-step view is an illustration: its supplies and prices move smoothly between the real figures quoted above, and its particles are not to scale.