Algorithmic Stablecoin Innate Flaw Cause Luna/UST Crash or Wall Street, Degens, & Whales to Blame?

20 min read

First, it should be stated that The Coti Report is a Djed Algo-stablecoin enthusiast, but like many in the COTI/Cardano communities, the Luna crash has taken some of the wind from our sails.  Like many who are betting on the success of Djed, we are wondering how Djed can avoid the infamous’ Death Spiral.  Were there red flags? How risky are algo-stablecoins? Will Djed inevitably meet the same fate as Luna? 


Here is a recent analysis from Guy, over at The Coinbureau, outlining the internal and external and known and unknown forces that created the “Perfect Storm” that led to Luna-UST’s demise. 

(Below is a transcription of this video dated May 19, 2022)


Last week, we saw what was once believed to be one of the most promising crypto project collapse, resulting in tens of billions of dollars of losses for individuals and institutions alike. I am, of course, talking about Terra, and as someone who held both Luna and UST as part of their portfolio, I wanted to wait until more facts came out before commenting on what the hell happened.

Today, I’m going to examine exactly what happened to Terra, tell you who could have been behind its crash and what comes next for this controversial crypto project.


Let’s take it from the top so that we’re all on the same page.

Company background:

Terra was, and I suppose technically still is, a crypto project funded in early 2018 by Ivy League-educated economist Daniel Shin, and an Ivy League-educated computer scientist, Kwon Do-hyeong, 30, also known as Do Kwon. Terra was built by Terraform Labs, or TFL, a South Korean software company that was incubated by the Terra Alliance, a group of 15 Asian e-commerce giants. (Note that Terraform Labs is based in Singapore.}

Since its inception, Do Kwon has served as the CEO of Terraform Labs, and Daniel Shin left Terraform Labs in early 2020 to become the CEO of the Chia Corporation, a payments app that leverages Terra. Terra’s development is coordinated by the Luna Foundation Guard or LFG, a Singaporean nonprofit that was incorporated in January 2022. Note that all these details will be relevant later, so listen closely.

The Luna Foundation Guard’s governing council consists of seven individuals, including Do Kwon, as well as representatives from prominent crypto VCs like Jump Crypto and Delphi Digital, and even Binance Labs.

Now, Terra raised roughly $47 million across three ICOs in 2018 and has since raised tens of millions more from prominent crypto VCs, namely Galaxy Digital, which invested $25 million in Terra in early 2021. Terra’s Mainnet went live in April 2019 and its blockchain was built using the Cosmos SDK. This means Terra can process thousands of transactions per second while remaining secure, although it is quite centralized with just 130 validators. (Note that Terra’s validators are also the price oracles for Terra.)

Related article: Djed vs UST Algorithmic Stablecoin | COTI CEO, Experts & Community Explain Why Cardano’s Coin is Best

Coins, Luna and UST, background

Terra is, or rather was, an ecosystem of decentralized stablecoins, and its purpose was to power the next generation of payments with its various decentralized digital currencies and the various decentralized applications that were being built on the Terra blockchain.

Luna is Terra’s native cryptocurrency coin, and it’s used for staking on the Terra blockchain, to pay for transaction fees on the Terra Blockchain, and to table and vote on governance proposals for the Terra blockchain. Luna is also used to ensure Terra’s various decentralized stablecoins remain pegged to their respective fiat currencies. Luna does this using a novel ‘mint and burn’ mechanism plus free market arbitrage.

UST was, or rather is, Terra’s largest decentralized stablecoin and it is, or rather was, pegged to the US dollar. Like everyone else, I’ll use UST to explain exactly how Terra’s mint and burn mechanism works. Don’t worry, I’ll keep it super simple.

How Terra’s Mint and Burn Mechanism Works

On Terra, one dollar worth of Luna can always be burned to mint 1 UST and 1 UST can always be burned to mint one dollar worth of Luna. Now, suppose UST is trading at $1.50 or 50% above its $1 peg. If you hold Luna, you could burn one dollar’s worth of Luna two, mint one and a half UST, and then sell that newly minted UST for, say, another stablecoin. The result is an instant 50% profit and the increase in UST supply, combined with the sell pressure from you and other LUNA holders who are minting and selling UST, eventually brings UST back down to its $1 peg.

Obviously, the prospect of these instant profits creates buying pressure for Luna, as well. Logically, the same process applies in the other direction. For example, if UST is trading at just $0.50 or 50% below its peg, as a UST holder, you could burn 1 UST and essentially mint twice the dollar amount in Luna and make a 2x profit, assuming you immediately sell that Luna for something else. This reduction in UST supply, combined with the buying pressure for UST from traders who want to make a quick profit, eventually brings UST pegged back up to $1.

This is why UST is referred to as an algorithmic stablecoin and though this process of maintaining a peg sounds robust on paper, in practice, a depegging of UST to the downside runs the risk of something called a death spiral.

The Set-Up of the Luna Death Spiral – The Perfect Storm

As I just mentioned, when UST drops below its peg, there’s a huge incentive for traders to come in and buy that UST, burn it to mint Luna, and sell that Luna for an instant profit. I’ll repeat, that in order to realize this profit that newly minted Luna must be immediately sold.

Now, when the crypto market is on the rise, this process isn’t necessarily a problem because there’s lots of speculative demand for Luna, and that means any selling by UST arbitrage traders is unlikely to affect its price, if at all. When the crypto market is on the decline, however, this process does become a problem because there’s not much speculative demand for Luna, and that means its price is going down while it’s being aggressively sold by UST holders. This makes its price fall even further and causes panic among UST holders. And this is a short explanation of what happened to Terra.

As you will soon see, however, there were a lot more moving parts beneath the surface, and the first part we need to examine is something called seigniorage.

Moving Part #1 – Seigniorage: The Fast Rise of Terra Ecosystem and the Lunatics

On Terra, minting UST by burning Luna costs a small fee in Luna called seigniorage. For a long time, seigniorage fees went to Terra’s community treasury. After a while, the size of Terra’s community treasury had grown so large that the Terra community voted to burn all seigniorage fees as part of the Columbus Five upgrade last September (2021). The Terra community subsequently voted to convert the 89 million Luna in the Treasury to mint around 4.5 billion UST in November 2021. So yes, it was large, to say the least.

In the months that followed, the Terra community approved various proposals to bridge UST to just about every major smart contract cryptocurrency as part of the project’s mission to make UST the most accessible stablecoin in the crypto markets. When UST bridged to other blockchains, some kind of liquidity mining rewards were almost always involved. Put differently, anyone who used UST in Defi protocols on other cryptocurrency blockchains would earn additional cryptocurrency, be it Luna, UST, or some other coin or token. Naturally, these additional rewards created a lot of demand for UST. This increased demand for UST would push it ever so slightly above its $1 peg. And UST being above its peg would incentivize market participants to buy and burn Luna to mint UST for a small profit. This not only caused UST’s market cap to increase exponentially, but it also caused Luna’s price to increase exponentially. That’s because of basic economics. Luna supply was gradually being reduced as people burned Luna to mint UST for a small profit.

With demand for Luna simultaneously increasing while the number of Luna in circulation fell, this caused its price to rise rapidly. This dynamic is why some claim that Terra is a Ponzi. But if we’re being honest, a similar dynamic exists within just about every other asset on the planet, for that matter. Heck, even stocks only continue to rise because of increasing demand over time. I digress.

At its peak, in early April, Luna hit a high of $120, and Terra surpassed Solana to become the sixth-largest cryptocurrency by market cap. Meanwhile, UST’s market cap and circulating supply was just shy of 19 billion, making it the third-largest stablecoin after Tether’s USDT and Circle’s USDC.

UST was also listed on all of the most reputable crypto exchanges, including Coinbase, Binance, FTX, and Kucoin with many cryptos and U.S. trading pairs, so not just with other stablecoins. Although lots of demand for UST was coming from all of the Defi protocols offering liquidity rewards, the overwhelming majority of demand for UST was coming from a single Defi protocol on the Terra Blockchain called the Anchor Protocol, which held almost 80% of all the UST in circulation.

This brings me to the second moving part beneath the surface, which is of course Anchor Protocol.

Moving Part #2 – Anchor Protocol’s Unsustainable Yield

As many of you will know, Anchor Protocol was famous for offering a stable interest rate of 20% per year on UST. This suspiciously high rate led many people to accuse Anchor Protocol of being a Ponzi. But this also doesn’t seem to be the case when you consider how exactly Anchor Protocol works. And I’ll use a simple analogy to explain.

Imagine there’s a bank that’s offering a 5% annual interest rate on savings, the good old days if you will. Now, let’s say some rich bloke comes along and deposits $100 billion into this bank. Quick math tells you that this rich fellow will rake in $5 billion per year from his massive cash pile. Now let’s say that some poor bloke comes along and deposits $100 into the same bank. Quick math tells you that this poor fellow will make just $5 per year from his tiny cash pile. But the bank has a special deal for him. For a limited time, we will give you an annual interest rate of 20%. How is the bank going to give this poor bloke this interest rate? You ask. Easy. Just take $20 from the $5 billion of interest coming from the rich bloke’s massive cash bail and add it to the poor bloke’s tiny cash pile, Billy Big Bags won’t even notice.

Now, jokes aside, because the interest is being earned by the rich bloke’s massive cash pile, the bank can afford to give a 20% interest rate to literally thousands, if not hundreds of thousands of poor blokes and potentially secure thousands, if not hundreds of thousands of new customers. There’s only one thing the bank must do, and that’s to convince the rich bloke to let it redirect the $5 billion of annual interest on his massive cash pile to all the small cash piles of the poor blokes.

How is the bank going to convince the rich bloke to give up his annual interest? You may ask. Easy. Just offer him shares in the bank itself that will give him control of how the bank operates and promise to use a portion of all the interest being generated by the bank to purchase more shares, so their prices stay high.

Believe it or not, this is almost exactly how Anchor Protocol works or rather worked. On Anchor Protocol, the rich folk would deposit large amounts of staked Luna from Terra, staked Atom from Cosmos, staked Sol from Solana, staked AVAX from Avalanche, and even staked ether from Ethereum. The annual staking rewards for these Proof of Stake cryptocurrencies was, or rather is, 5% or more. All these staking rewards from the rich folks would get converted into UST by the Anchor Protocol, and then this UST would be given to the poor folks who were depositing UST to earn 20% per year.

If the staking rewards being earned by all Proof of Stake cryptocurrencies provided by the rich folks exceeded the amount needed to provide poor folks with a 20% yield on UST these additional staking rewards would again be converted into UST and deposited into the Anchor Protocol’s yield reserves, which would be used to keep paying the poor folks when there aren’t enough rich folks around.

In return for providing Proof of Stake cryptocurrencies, the rich folks would get Anchor Protocol’s ANC token, which is used for governance and a portion of Anchor Protocol’s yield reserves would be used to buy ANC to ensure that its price increased along with the popularity of the protocol.

As with Terra itself, Anchor Protocol worked much better on paper than it did in practice because in practice there are many more poor folks than there are rich folks. In other words, the staking rewards coming from the Proof of Stake cryptocurrencies provided by the rich folks were not nearly enough to continue paying a 20% interest rate on UST for all the poor folks. And as a result, the yield reserves were being drained rather than filled.

Now, to be fair, this is something that the Anchor Protocol team and community were aware of, and it’s why they were in the process of reducing the protocol’s 20% interest rate to something more sustainable.

In the interim, Anchor Protocols yield reserves were being replenished with UST coming from the entities behind Terra, and this ties into the third moving part beneath the surface, the Luna Foundation Guard.

Moving Part #3 – Luna Foundation Guard Aware of their Depegging Vulnerability Devises a Plan

As I mentioned earlier, the Luna Foundation Guard, or LFG, is the Singaporean nonprofit that coordinates Terra’s development. However, the LFG plays another, more important role, and that’s to ensure UST’s peg remains stable at all costs. As many of you will know, the LFG is famous for buying up billions of dollars of BTC, which was going to be used to protect UST’s peg. What many of you might not know is the backstory to how this BTC Treasury came to be.

Three times UST depegged prior to May’s crash

Prior to the events of last week, UST held its peg quite well, except for three prior occasions. The first was at the end of December 2020, when UST fell sharply below its peg for about a day. At this time, I am unable to find the exact cause of this depegging event. Anyways, the second time UST lost its peg was during the crypto crash last May 2021 when UST fell significantly below its peg for more than a week. In an interview last October 2021, Terra co-founder Do Kwon explained that it was last May’s crash that really made the Terra team start to think about how they could protect UST’s peg and they settled on BTC as the ideal backing for UST during times of volatility. However, it was the third major depegging event that really kicked the Terra team in the Kester. And that was when UST fell slightly below its peg in January 2022.

Reason for the 3rd major depegging event caused by Abracadabra and Degenbox

Now, this depegging was reportedly caused by a Defi protocol called Abracadabra, which makes it possible to mint another decentralized stablecoin called Magic Internet Money, or MIM, using interest-bearing tokens as collateral. As you might have guessed, UST was one of the tokens that could be deposited into Abracadabra to mint MIM. Specifically, a UST, which is an interest-bearing token, is given to UST holders as a sort of receipt for their UST when they deposit said UST into the Anchor Protocol.

On Abracadabra, some Defi degens came up with a clever strategy called the Degenbox, which is where you deposit a UST into Abracadabra to mint MIM, then use the MIM to buy UST to deposit UST into Anchor Protocol to get more aUST, deposit that aUST into Abracadabra and so on until you have lots of yield.

Now, it doesn’t take a Defi expert to realize that this Defi strategy is extremely risky because if MIM or aUST deviates from its peg by even just a couple of percentage points, the entire scheme could collapse very quickly, and in Terra’s case, this had the potential to do serious damage to UST and Luna.

As it so happens, it was discovered that one of the people working closely with the developer, behind Abracadabra, was the co-founder of QuadrigaCX, the infamous Canadian cryptocurrency exchange, which collapsed after its other co-founder died while on holiday in India. Or so the story goes. This shocking revelation spooked holders of the coins and tokens associated with Abracadabra, and this is ultimately what caused UST to fall slightly below its $1 peg in January 2022.

Realizing the exponential risks associated with having UST on so many chains and in so many Defi protocols, the recently incorporated LFG moved forward with the plan to use BTC to protect UST’s peg. This relates to the fourth moving part beneath the surface: the LFG’s BTC accumulation.

Moving Part #4 – LFG’s BTC accumulation – The Plan to Protect UST’s Peg

About a month after the LFG was established, around February 2022, it started raising the capital required to purchase boatloads of BTC, starting with a $1 billion raised from prominent crypto VCs, including Jump Crypto and Three Arrows Capital, which was financed through over-the-counter sales of LFG Luna Holdings.

The plan was straightforward; buy up enough BTC to back 20% of UST circulating supply and then use Terra’s aforementioned seigniorage fees to automatically purchase additional BTC every time someone burns Luna to mint UST. Recall that seigniorage fees are currently burned. Now, given UST’s circulating supply at the time, backing 20% of it with BTC would require just over $3 billion worth of BTC. With only 1 billion raised and much of it spent, the LFG needed some additional capital to continue its BTC accumulation.

In early March 2022, Terra’s co-founder Do Kwon announced that Terraform Labs had gifted $1.2 billion worth of Luna to the LFG, which would be converting it to UST and using said UST to continue buying BTC. A few days later, Do Kwon also announced that Terra was aiming to accumulate $10 billion of BTC to protect the UST’s peg, with 3 billion being accumulated by the LFG and the remaining 7 billion being accumulated overtime via seigniorage fees.

Shortly after that, Jump Crypto posted to Terra’s governance forum, a detailed plan for how exactly BTC could be used to protect UST’s peg. The short explanation is that the LFG would deposit all its BTC into a non-custodial reserve pool where anyone could redeem UST for BTC the same way they do with Luna. The assumption here is that if UST were to drop significantly below its peg, rational market participants would opt to swap their 1 UST for one dollar worth of BTC rather than one dollar worth of Luna. This would take the sell pressure off Luna and prevent the death spiral scenario I was talking about earlier.

Anyhow, in early April 2022, Binance added support for the Anchor Protocol, making it possible for its 30 million users to earn high stable yields on UST. Note that I’m just mentioning this to underscore just how integrated Terra was with the entire crypto ecosystem. Terraform Labs and the Luna Foundation Guard also purchased $200 million worth of Avalanche’s AVAX as part of an ongoing plan to add other cryptocurrencies to Terra’s stability reserves for UST.

Do Kwon had earlier mentioned that their plan was to eventually start accumulating the cryptocurrencies that belong to the smart contract blockchains UST is available on. Again, this will all be relevant in just a moment.

In mid-April 2022, Terraform Labs gifted yet another $900 million worth of Luna to the LFG to sell for more BTC. All the while, the LFG was giving frequent updates about its BTC buys, which would happen in waves of around $100 million at a time. The LFG also made all its crypto wallet addresses public for everyone to see the accumulation in real-time.

The LFG achieved its target of backing 20% of UST circulating supply on Thursday, May 5, 2022, with a $1.5 billion BTC-buy financed through the sale of Luna to Three Arrows Capital and Genesis Global Trading, a crypto OTC broker and a subsidiary of Digital Currency Group. And then everything went to S-H-I-T!!

Related article: Djed vs UST Algorithmic Stablecoin | COTI CEO, Experts & Community Explain Why Cardano’s Coin is Best


Terra’s implosion arguably began on Saturday, the 7th of May. And I’ll quickly note that the following order of events has been confirmed to one of the researchers here at the Coinbureau by a high-profile member of the Terra community…who shall not be named. I’ll also highlight events where speculation is involved.

On Saturday night, May 7th, 2022, the Terra team withdrew a massive amount of UST from a trading pool on Curve Finance. For context, Curve Finance is a decentralized exchange for stablecoins, and the Terra team withdrew all that UST in preparation for something called the 4Pool, which I won’t get into here. All you need to know is that the moment the Terra team withdrew this UST, an unknown Whale sold around 85 million UST for 85 million USDC on Curve Finance, and this pushed UST slightly below its peg.

There is speculation that another $200 million of UST was simultaneously sold on Binance. And though lots of well-respected folks in the crypto space swear that this happened, it cannot be confirmed at this time.

Regardless of where the sell pressure was coming from, it was enough to push UST slightly below its peg.

Now because the crypto market had already been crashing in the days prior, risk-averse individuals and institutions with exposure to UST immediately started selling out of safety concerns. And this isn’t speculation.

In a recent interview with Digital Asset News, Celsius, CEO Alex Moshinsky said they pulled all their and their user’s assets out of the Anchor Protocol as soon as UST fell slightly below its peg and this was almost certainly the case with similar crypto apps that had exposure to UST and the Anchor Protocol.

As you can see, around 9 billion of the 14 billion UST on Anchor Protocol was withdrawn within the first 48 hours of UST falling slightly below its peg. This mass exodus from the Anchor Protocol created intense sell pressure for UST as everyone exchanged it for other stablecoins and this pushed UST significantly below its peg. When that happened, various market participants started burning UST to mint Luna for a quick profit, which of course required selling Luna right away to realize, especially since Luna’s price had already been crashing along with the rest of the crypto market.


1) Predictable Retail Investor Behavior – Sell When UST’s Market Cap Is Greater Than Luna

This sell pressure on Luna as well as the sudden increase in its circulating supply crashed its price even further. And the moment Luna’s market cap fell below UST’s market cap Luna officially entered the death spiral with more Luna being minted while its price was reduced to ashes. This is simply because UST is fundamentally a representation of the potential sell pressure on Luna, and it appears that many Luna and UST holders took this realization to heart. If UST’s market cap is larger than Luna’s, then it can’t absorb the sell pressure from UST, and that means it’s going to zero.

2) Now Terra is Vulnerable to Attack

With Luna’s price in freefall, the integrity of the Terra blockchain itself was under threat as an attacker could manipulate the governance proposals that people were trying to pass to stop the bleeding. A low Luna price also made it easy for a malicious actor to become a validator and manipulate transactions.Attempts by Terra’s validators to buy some time were futile.

Left with no other option, Terra’s validators agreed to halt the chain for a while to try and buy some time. Upon restarting the chain, the chaos continued, so Terra’s validators halted the chain again before restarting it for a second time, but with Terra’s mint and burn mechanism for stablecoins disabled.

3) Kwontitative Easing – Last resort to restore the peg

All the while, Terra’s Luna Foundation Guard was aggressively selling BTC on the spot market with the help of multiple market makers on multiple exchanges. And the LFG revealed in a recent Twitter thread that it had basically emptied the clip. It spent over 80,000 BTC to try and restore UST’s peg. On-chain analysis done by Glassnode and Elliptic seems to confirm the LFG’s claims, and you can find both of those reports in the description.

Now there is speculation that the same entity that dumped UST on Curve Finance, and supposedly on Binance, also opened a short position on BTC, knowing that the LFG would be dumping its BTC on the open market, thereby crashing BTC’s price. There are again many prominent crypto personalities who insist that this is what happened, and some have even gone as far as to say that the attacker even used the profits from shorting BTC to continue attacking Terra through its mint and burn mechanism. Now, unfortunately, none of this can be confirmed.

By Friday, the 13th of May, both Luna and UST had flatlined, dealing a $40 billion blow to Luna and UST holders and tens of billions of more dollars in damage to the individuals, institutions, Defi protocols, and smart contract cryptocurrencies that had exposure to Terra’s ecosystem, which was almost all of them. And yes, one of those individuals was me.


So who is to blame for Terra’s collapse? Well, I’ll start by saying that nobody currently knows who’s behind it all, and maybe we’ll never know. All we have right now is speculation based on what are likely just coincidences. But all signs seem to point to Wall Street. And here’s why.

Four “Coincidences” Point to Wallstreet As Likely Culprit

1) Almost every single individual and institution in cryptocurrency had exposure to Terra in some way, shape, or form. VCs were heavily, and I mean heavily invested, in this project, and they genuinely believed in its potential, like so many of us did and some still do.

As a quick side note, I remember at the Queensborough Conference a couple of weeks ago, we asked the crowd how many people were using Anchor Protocol, and almost everyone raised their hand; literally hundreds of people. It’s just one of many examples of how widespread the adoption of Terra really was.

If you accept this premise, the only place this potential perpetrator could have come from is traditional finance, because I don’t imagine anyone involved in crypto would shoot themselves, much less their crypto partners and clients in the foot by killing Terra just to make a few billion bucks. I also don’t imagine anyone involved in crypto would want to draw the attention of regulators by destroying a decentralized stablecoin.

As far as I know, the only people who want aggressive crypto regulation work in or work closely with entities in traditional finance. This is where the coincidences come in. And the first one is that the Federal Reserve mentioned the risks of stablecoin runs in its Financial Stability Report, which was released on Monday after Terra began collapsing. If you ask me, this really was just a coincidence.

2)  The second coincidence is much harder to explain away, however, and that’s that Treasury Secretary, Janet Yellen, mentioned Terra’s collapse in her testimony to US politicians on Wednesday. Now I find it hard to believe that word of Terra’s depegging had reached her so quickly unless someone she knew was following Terra’s dynamics closely. But still probably just another coincidence.

3)  The third coincidence is more like circumstantial evidence, and that’s the fact that Tether’s USDT stablecoin also briefly fell below its peg and that this is something Janet also mentioned in her testimony on Thursday. This can be easily explained away by the fears that the regulatory crackdown on stablecoins will likely affect Tether as it operates outside of the United States and hasn’t exactly been all that transparent about the reserves backing USDT.

For what it’s worth, Tether has reportedly redeemed over 9 billion USDT over the last week or so with no issues. Interestingly, the market cap of Circle’s USDC increased by about 4 billion over the same period and BUSD by 2 billion. A flight to safety. I suppose.

4)  The fourth coincidence is closer to concrete evidence, and that’s the timing of this supposed attack. The fact that someone knew exactly when the Terra team would be pulling UST out of Curve Finance seems to be the strongest evidence that this was an attack from someone somewhere as this information was not publicly known. The events that unfolded afterwards could have been nothing more than various market participants taking advantage of Terra’s downfall, be they from Wall Street or Main Street. Still, there’s no denying that this dented the crypto industry and the legacy financial system, especially the US dollar itself, can and likely will do everything within its power to ensure that it’s not replaced by crypto or anything else.

Consider for a moment that Terra was building a decentralized stablecoin backed by digital gold. That might just be the greatest middle finger to the financial system anyone can raise.


Now to wrap things up, I want to talk a bit about Terra’s future, which is currently uncertain. The latest news is that Terra is probably going to fork with the old Terra chain being known as Terra Classic and the new Terra chain retaining the original name but with no algorithmic stablecoins. Terra co-founder, Do Kwon is behind this recovery plan, and he noted on Twitter that a snapshot of Terra’s current blockchain will be taken next Friday, the 27th of May, and those with Luna and UST in their wallets at that time will receive a portion of Luna’s new supply.

If I understand correctly, the initial supply of new Luna will be the same as the initial supply of old Luna, which is 1 billion, and it will be distributed as follows: 25% to the community pool, 35% to holders of Luna prior to Terra’s collapse, 10% to the holders of aUST prior to Terra’s collapse. (And you’ll recall aUST is the token receipt you get when you deposit UST into the Anchor Protocol), 10% to holders of Luna after Terra’s collapse and 20% to UST holders after Terra’s collapse. I’ll leave a link to the details in the description that described the exact vesting schedule and all of that fun stuff.

Do Kwon’s Terraform proposal is currently being voted on, and so far, it looks like it’s likely to pass. Even if it doesn’t pass a Terra fork of some kind is the most likely outcome; and that’s for one simple reason, exit liquidity.

As you can imagine, everyone who was close to Terra when it exploded is desperate to get their money back, and forking Terra’s blockchain is probably their best bet to that end, even if it’s not ideal by any stretch. Not only that, but our source in the Terra community told us that most of the projects building on Terra were actually staking their treasuries on the Anchor Protocol to get more money for development. This means that most of Terra’s projects are unlikely to go anywhere for the time being, simply because they are waiting in line to get their scraps from the new Terra blockchain, too.

If you’re wondering why most of Terra’s projects don’t start building on other blockchains in the interim, the answer is apparently Do Kwon himself.  Do was famous for being bombastic, to put it mildly. He frequently ragged on other crypto projects he saw as competitors and routinely shot down Terra’s critics even when they clearly had a point. While Do ‘s powerful personality made Terra a powerful project, it also made him many enemies. And it’s even possible that one of them was behind the attack on Terra’s Curve Finance migration. Moreover, the consensus in the Terra community seems to be that Do Kwon’s godlike position in the project’s ecosystem clouded his judgment on more than one occasion. And there’s certainly a discussion to be had there; never mind that whole thing about his involvement in Basis Cash.

The bigger problem is Do’s continued affiliation with Terra, specifically his involvement in the creation of Terra’s new blockchain, and the fact that it’s guaranteed to alienate VCs, angel investors and rational retail investors who aren’t fans of Do Kwon and that list seems to be growing by the day. The real tragedy is that it looks like Terra’s developers, projects and communities will have to keep following his footsteps regardless of where they lead because it’s the only hope they really have at getting some of their money back. If and when they do, I suspect that the Cosmos ecosystem will see an explosion in growth and development because at the end of the day, there’s no denying that Terra had some of the best developers and easily one of the best communities in crypto, and they will succeed where Terra failed.


The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.