The collapse of the Terra ecosystem in May 2022 was the catalyst for further collapse of the digital asset market. The event also led to the collapse of some of the companies that held positions in LUNA and the UST “stabelcoin”, which was once generating 20 per cent annual returns thanks to staking.

At the end of the month, a revamped version of the Terra network emerged, the main feature of which was the absence of an algorithmic stackcoin in the ecosystem. However, the situation with the newcomer is not good: as of today, the new LUNA is 86.9 per cent behind its all-time high, while the project’s chart is questionable due to the presence of sharp movements.

A chart of the updated LUNA cryptocurrency from the end of May 2022

Terra’s problems have been one of the most prominent this year. Crypto-illustrators are now mentioning this situation in their work. For example, this is how a Twitter user under the pseudonym perchy.eth depicted the last year in an image titled “Goblin City”. This word combination in the cryptocommunity describes a coin market at the bottom after its serious collapse.

“Goblin City” in the cryptocurrency world

Terra is mentioned here in the bottom right corner. Find the picture in full resolution at .

Why Bitcoin and other cryptocurrencies collapsed

According to CryptoSlate sources, Bitcoin was trading at $47,000 at the end of March, with its rise continuing despite early warnings of surging inflation and geopolitical issues in Europe.

Bitcoin opened May at $40,000, but as early as May 7, the UST stabelcoin within the Terra ecosystem began to lose its peg to the US dollar. By May 13, the coin had fallen in price to cents, with the value of Bitcoin dropping to $30,000 amid the crisis of the project. By mid-June, the price of the main cryptocurrency had fallen another 62 per cent since late March.

The period of negative news about the project and Terra’s collapse is highlighted in red on the Bitcoin chart

In addition to the value of BTC, the direct impact is also noticeable in the chart of the crypto’s volume held by long-term investors. Glassnode analysts consider long-term investors to be those who hold the digital asset in their wallet for more than six months. That figure bottomed out by the end of July and then began to rise quickly, due to buyer activity in early April and May.

Volume of BTC in the hands of long-term holders and cryptocurrency price

The above is consistent with the distribution of coins by long-term holders. Periods marked with red bars in the charts indicate massive sales of BTC. And vice versa: green bars indicate increasing position in crypto. As we can see, the situation has changed dramatically since September, and now long-term investors are actively accumulating bitcoins.

The trend of BTC long-term holders’ positions and the cryptocurrency price

Let’s return directly to the Terra project itself. There is a lot of news related to it ahead of us, as its founder Do Kwon is still not in direct contact with law enforcement agencies. Although he himself says he is not hiding, just “avoiding meetings” with pesky investors.

But his name is already on Interpol’s wanted list, as some South Korean law enforcers would like to have a personal interview with Kwon on the real reasons behind Terra’s collapse. And at the same time hold him possibly responsible for the loss of tens of billions of dollars to investors.

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A lawsuit has also been filed against Do Kwon along with Terraform Labs and Luna Foundation Guard (LFG) co-founder Nicholas Platyas in Singapore. The plaintiffs include 359 affected investors, who claim that the UST algorithmic steblecoin initially had critical errors in its protocol that led to a loss of parity with the US dollar.

The plaintiffs are seeking compensation for “losses and damages” of around $57 million. This amount comes from the value of the UST tokens they bought, held or sold during the market downturn in May. They are also asking for an order for “aggravated damages”.

Do Kwon continues to post on Twitter. Here’s his recent retweet

According to the plaintiffs’ side, Terra’s co-founders failed to prevent the disaster, even though they allegedly have a “wealth of experience” with similar incidents. As a reminder, Basis Cash (BAC), a relatively obscure steblecoin that had been on the market since before UST was created, was launched in late 2020. Already at the beginning of the following year, BAC lost its parity with the US dollar, and the project was soon abandoned.

Most interestingly, Do Kwon and several other senior figures from Terraform Labs were involved in the development of BAC. This was confirmed earlier in an interview by former Terraform Labs developer Hyunsuk Kang, who has left the startup. From all these details, it seems that preventing Terra’s collapse was entirely within the power of Kwon’s team, but they didn’t do so due to basic negligence. The final verdict in the case is yet to be made by the authorities.


We believe Terra's collapse was clearly the catalyst for a further market collapse along with the death of some blockchain companies, and given the incredible losses of investors, Do Kwon will clearly have to answer for his actions in the spring of 2022. In the meantime, it is clear that some cryptocurrency investors have drawn the right conclusions from the situation and will now act more cautiously.


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