LUNA and UST implodes — the story of a ticking timebomb

Terra and its ecosystem has literally imploded with significant investor losses over the past three days.

LUNA, the native token of the Terra ecosystem, is down 99.9% in 48 hours, trading as low as US$0.003, from its highs ($116) reached just last month. That means everyone who bought LUNA at any step of the way would have seen losses.

90% losses each day, every day for the past 3 days:

• $100 to $10
• $10 to $1
• $1 to $0.1

UST, the stablecoin pegged to the US Dollar native to Anchor Protocol, traded 75% off at $0.25. That has sent LUNA, the native token of the Terra protocol, into a downward spiral as LUNA is used to keep UST’s peg.

But why did the collapse happen? Who’s to blame?

LUNA and UST peg

The story begins with LUNA and UST (TerraUSD). LUNA is the native blockchain token of the Terra ecosystem, just like other tokens like ETH (Ethereum), FTM (Fantom) and SOL (Solana).

Assuming LUNA has value, one could LUNA to create another arbitrary stablecoin worth $1 called UST, that derives its value based on LUNA. The arbitrage relationship works like this:

• 1 UST is worth $1