### **Why Terra Luna (LUNA) Crashed in 2022 – The Full Story**
The collapse of **Terra Luna (LUNA)** was one of the biggest disasters in crypto history. Here’s **what really happened** in simple terms:
#### **1. The Fatal Link Between LUNA and UST**
- Terra Luna’s ecosystem relied on **UST**, an algorithmic stablecoin designed to stay pegged **1:1 with the US dollar**.
- Unlike stablecoins backed by cash reserves (like USDC), **UST maintained its peg through a complex burn/mint mechanism with LUNA**.
- If UST dropped below $1, users could **burn UST to mint $1 worth of LUNA**, and vice versa.
The Death Spiral Begins**
- In **May 2022**, UST started losing its peg due to **massive withdrawals** from Anchor Protocol (a DeFi platform offering 20% yields on UST).
- Panic selling worsened the depeg, causing UST to fall to **$0.90, then $0.70, then lower**.
- The system tried to "fix" UST by **printing insane amounts of LUNA**—but this flooded the market, crashing LUNA’s price.
#### **3. Hyperinflation = LUNA Goes to Zero**
- As more UST was burned, **LUNA’s supply exploded from ~350M to over 6.5 TRILLION** in days.
- With **too much supply and zero demand**, LUNA’s price collapsed from **$80 to $0.000001**.
- Investors lost **billions**—even big players like **3AC (Three Arrows Capital) got wrecked**.
#### **4. Why It Couldn’t Be Stopped**
🚨 **No Real Backing** – UST wasn’t backed by cash or assets, just code.
🚨 **Reflexive Collapse** – The more UST fell, the more LUNA was printed, making things worse.
🚨 **Contagion Effect** – The crash triggered a **broader crypto market crash**, sinking Bitcoin and others.
Lesson Learned?**
- **Algorithmic stablecoins are risky**—if trust is lost, the system implodes.
- **DYOR!** Projects promising "20% risk-free yields" are often **too good to be true**.
Would you like a **deep dive on how Luna 2.0 (Terra Classic vs. New LUNA) survived** after this crash? Let me know
