In 2024, cryptocurrencies are again experiencing a bull run, and the Crypto Winter is no longer fresh in everyone’s memory except for those who lost a significant amount in 2022. Three Arrows Capital and Coinbase Ventures still remember.
Lightspeed Ventures Partners and Galaxy Digital also remember, particularly Galaxy’s CEO, Mike Novogratz, who got a LUNA tattoo as a reminder to remain humble when investing. Looking back at the Terra-LUNA crash is essential because it’s still unclear who caused it.
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In May 2022, the crypto market lost $60 billion due to the failure of TerraUSD, an algorithmic stablecoin, and LUNA, another cryptocurrency. Both were created by Terraform Labs (TFL) and traded on the Terra blockchain, founded in 2018 by Do Kwon and Daniel Shin.
The popular belief about the Terra-LUNA crash was that it was a collective trading phenomenon rather than the result of manipulation by a third party.
However, the SEC’s current investigations into the crash raise questions that have been circulating among those most affected by the crash, including retail investors and Do Kwon, the founder of TFL.
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Kwon accused Sam Bankman-Fried (SBF) of intentionally attacking the currency using a huge bet with the capital he secured with a loan from Gemini.
How the Anchor protocol helped sink Terra https://t.co/UAPdQgbLJV pic.twitter.com/2Vpx89NU9O
— The Verge (@verge) May 20, 2022
Rumours circulate about the actions of Alameda and FTX, as well as Jump Trading, Wormhole, and Coinbase. Jump Trading was adversely affected by the crash, Wormhole was offered as a solution, and Coinbase had to decide whether to suspend trading while Terra Labs decided what to do.
1/ The @wormholecrypto support for Terra in the V2 UI is live!
Transfers of $UST and $LUNA between Terra, @ethereum, @solana, and @BinanceChain via Wormhole’s cross-chain bridge are now available 🙂 https://t.co/2gWsIq2KxW
— Terra 🌍 Powered by LUNA 🌕 (@terra_money) October 19, 2021
Then there’s Anchor Protocol, which held as much as 72% of all Terra, LUNA’s sister token, according to Decrypt, acting as an engine pumping up the bubble with lofty claims of 20% “stable” ROI.
Joe Springer, a retail investor in Wrapped LUNA, watched his investment lose more than 99% of its value. Since then, he’s been investigating how it came about.
Springer believes that 1.7 minutes before the blockchain halt, Alameda exchanged 37,000 USDC for 670 million wrapped LUNA. The total supply had been around 9 million wLUNA. After this trade, they halted the blockchain for eight hours.
During these eight hours, Springer thinks Do Kwon and his lieutenants and counterparties discussed the future of Terra.
The most decentralized stablecoin is also about to become the fastest. $UST on @solana is going to melt all the faces. https://t.co/cCP19pqk5g
— Do Kwon 🌕 (@stablekwon) August 10, 2021
As LUNA crashed, arbitrage opportunities opened up for insiders who understood the blockchains and could move quickly. Other less-informed investors frantically debated whether to sell or hold and struggled to move their tokens, not knowing who to trust.
Now, the SEC’s cases against some of the biggest names in crypto could transform the face of the industry in the U.S., so the stakes are high, and rumours are rife.
In 2021, Alameda and FTX (read: SBF) seemed to launch a depeg attack on TerraUSD in the form of a half-billion wash trade, using a loan from Genesis, functioning as a short on the stablecoin.
Jump had invested heavily in Terraform Labs and tried to stabilize its stablecoin in the wake of the depeg attack.
1/ Over the last few weeks, we at Jump Crypto have been studying the UST depegging and have three key observations. pic.twitter.com/kq48npoM8C
— Jump Crypto 🔥💃🏻 (@jump_) June 3, 2022
Last year, Taewoo Kim, an investor hurt by the crash, sued Jump Trading in Illinois District Court, accusing Jump of “secretly schem[ing]… to manipulate the market prices of USD and aUSD by making secret, coordinated trades to prop up USD to its $1 peg.”
The SEC allowed material produced by Jump Crypto Holdings, Jump’s crypto arm, to be kept under seal in the case against Terraform Labs. Nevertheless, it was pretty obvious who “Firm-1” was in the indictment against Kwon.
Taewoo Kim made note of that in his lawsuit, writing, “The criminal indictment against Kwon alleges that, in or around May 2021, Kwon ‘contacted representatives of a United States trading and investment firm (‘Firm-1’) to obtain their assistance in altering the market price o”.