Crypto Halloween: Top 6 Scariest Incidents of the Last Bull Cycle

1. The Terra Fiasco

No scary crypto incident list could ever be complete without this year’s Terra debacle. A once attractive project with a thriving ecosystem and the charismatic Do Kwon at its helm, the Terra project rose to prominence as quickly as it receded, leaving hundreds of thousands of investors in shambles in the process.

Unfortunately, it was largely one component of the Terra ecosystem that proved to be the crux of its inevitable downfall: algorithmic stablecoin UST. UST was linked to LUNA, the price of which was determined by the market. While UST’s status as always being equal to 1 LUNA generated arbitrage opportunities, it also left the entire ecosystem in danger of exploitation.

And exploitation is exactly what happened. In early May, 2022, unknown whales began swapping hundreds of millions of UST for USDC on Terra’s lending protocol, Anchor, where investors staked their UST in order to earn juicy 20% yields. This led to the gradual depegging of UST, and while Kwon tried to “deploy more capital” through Luna Foundation Guard (LFG) to protect the peg, it was already too late—the snowball was already rolling.

UST briefly managed to repeg but eventually went into free fall, and nothing Kwon threw at it could abate the death spiral. Due to their inextricable link, Terra’s demise meant that the price of LUNA also crashed brutally. It was so bad that Terra Labs opted to halt the blockchain altogether, but that, of course, yielded no better result.

Within the span of just a few days, Terra went from a $40 billion market cap and ranking among the top 10 cryptocurrencies, to being a failed project that lost everything–its reputation, developers, capital, ecosystem, and most egregiously, its users’ funds. The implosion also had a knock on effect, as Three Arrows Capital, the now infamous crypto hedge fund, went bust due to its heavy exposure to the Terra ecosystem.

Naturally, no failing Ponzi scheme, as many have since dubbed it, is complete without a charismatic, controversial persona steering the sinking ship. Founder and CEO Do Kwon remained confident and arrogant throughout the debacle, refusing to take responsibility for events. There have even been some reports that Kwon may have known what was going to happen, or may even have been involved in some capacity. 

In any case, Kwon went missing soon after the project crashed, and though he occasionally resurfaces on social media, he has yet to admit any fault. The once mighty leader of the Terra ecosystem is now a fugitive of South Korean law enforcement and even Interpol, though he maintains that he is not in hiding. Officials have also voided Kwon’s passport.

It’s important to note that the Terra collapse was far from a surprise. In fact, multiple people had criticized the algorithmic stablecoin mechanism and some even bet millions that, sooner or later, it’s going to collapse.

The tale of Terra Luna is not a fun one, and while it will continue to scare crypto enthusiasts around a campfire for years to come, the reality is that it affected hundreds of thousands of people, with some even taking their own lives after losing their life savings. Let it be a lesson to current and upcoming crypto generations: if it looks too good to be true, it probably is.