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What happened to LUNA? – The risks
behind cryptocurrency investment.
Yusuf Suleman
The appeal of cryptocurrencies…
Over the summer months of 2021, vast numbers
of “investors” took the plunge into the
cryptocurrency market. Some have argued that
this came as a result of lockdown restrictions first
implemented on the 23rd of March; with
consumers stuck at home, there was a new-found
urge to rotate the funds they once spent on
consumer goods on gambling through the crypto
market. Others have argued that certain influential
individuals convinced people to buy in.
Figure 1 The Market Cap of Cryptocurrencies over
the summer months ($1.25T - $2.75T)
Once there was a vast number of new investors
looking for a quick flip of a coin, prices of
cryptocurrencies soared. The demand for these
coins was essentially endless, whilst the supply
would always be fixed.
Throughout social media, hundreds of stories
circulated of people who had made fortunes
through relatively small amounts, consequently
tempting further investors into the market due to
a fear of missing out. For example, an anonymous
One coin that increased
exponentially in both
popularity and price was the
LUNA coin of the terra network.
From 2021 to the early months of 2022, LUNA saw
a year of impressive growth. Backed by various
investments made by its owner “Do Kwon”, a wellknown figure in the space, it looked like a secure
store of value for its investors.
investor in the coin SHIBU INU saw his long-term
So what happened?
investment; go from $8,000 to worth over $5bn.
In April 2022, LUNA hit an all-time high of £95 per
Some have argued this may have been the creator
coin. However, in May of the same year it was
of said coin, whatever the case; events like these
sitting at an average price of £63.5 per coin, a
may have played a part in creating a “perfect
market cap of £22.68Bn and a daily trading volume
storm” for a crash.
of £2.43Bn.
For any investor this would seem like characteristic
price action of a cryptocurrency following a fruitful
summer in 2021; a relatively small fall in value was
Despite this price difference seeming relatively
not out of the ordinary. What was not apparent to
miniscule, when conducted at a mass-scale, those
both Institutional and retail investors alike, was
who saw this opportunity were able to profit
what would follow…
greatly. In a matter of days billions of dollars worth
of LUNAs value was eradicated.
As a result, Terraform, the team behind LUNA,
prevented conversions between the two coins –
making LUNA essentially worthless. At this point
the damage was done; LUNA could not recover,
leading to investors selling for any price they could
get - in hopes of raking back some of their
Figure 2 The price of LUNA from the 15th of March to the
13th of May (USD).
investment. Mass undercutting ensued and by the
13th of May, 1 LUNA was equivalent to $ 0.000167.
On the week commencing 9th of May, LUNA began
its descent towards zero, due in part to the de-peg
The aftermath
of its corresponding stablecoin. A stable coin is a
The extent to which this was an unexpected event
coin that is backed by a substantial amount of real-
should not be underestimated. Do Kwon, the
world capital, allowing for the conversion of
fanatical leader behind the coin had rather
cryptocurrencies into virtual dollars or pounds.
comedically, the month prior, named his newly-
Examples of such include USDC, USDD, and in
born daughter Luna, stating “my dearest creation
LUNA’s case, UST. Their primary function is to act
named after my greatest invention”. He had at
as an intermediary between real-world currencies
one point; bet the twitter influencer
and cryptocurrencies meaning their exchange
@AlgodTrading $1 million USD that LUNA’s value
rates are supposed to be fixed at $1 per 1
would not fall beneath $88. The funds are in still in
USDC/USDD/UST.
escrow despite there being a clear winner to the
UST was subjected to a large-scale attack on the
bet at the time of writing.
7th of May, where hundreds of millions worth of
The financial times published an article following
UST were dumped on to the market in order to
the crash, giving Do Kwon the nickname of “the
force the price down. The problem with this was
most hated man in Korea” and a “Lunatic leader”.
that regardless of the price of UST, it was able to
Finally, LKB & partners, a prominent law firm in
be converted 1-1 with $1 worth of LUNA. So when
South Korea has filed both criminal and civil law
the price fell to ¢0.91 per UST, investors were able
suits against Kwon.
to buy at this price, convert to $1 of LUNA - making
¢0.09 profit in the process. They would then dump
LUNA after making their profit, forcing it down in
hand, with UST. In economics, this is known as
arbitrage.
The story behind Luna is one that should be taken
as cautionary tale behind cryptocurrency
investment, a tale of a man who got too rich too
fast, and of the overconfidence that toppled an
empire. No financial body is ever “too big to fail”.