What happened to Terra Luna?

Terra Luna was a crypto network whose stablecoin, TerraUSD (UST), and native token, LUNA, collapsed together in May 2022. US prosecutors put investor losses at over $40 billion, after the two tokens had been worth more than $50 billion combined at their spring 2022 peak. The mechanism behind UST is explained in what is an algorithmic stablecoin. This guide covers the story of the fall and what came after.

Why did Terra Luna crash?

UST was meant to hold $1 because holders could always swap it for a dollar's worth of newly minted LUNA. That only works while people trust LUNA. Demand for UST was driven largely by Anchor, a lending app on Terra that the SEC says advertised yields of up to 20%. A study summarized by Harvard's corporate governance forum found that keeping Anchor's rate near 19.5% cost about $6 million a day in subsidies by April 2022.

On May 7, 2022, two large addresses pulled 375 million UST out of Anchor, the researchers found. Selling pressure pushed UST below $1, and holders rushed to swap it for LUNA. Each swap minted more LUNA, which drove its price down, which meant even more LUNA had to be minted. The authors call it a death spiral.

What happened to UST?

UST never recovered its peg. The study found that wealthier, more sophisticated investors ran first and lost less, while smaller investors ran later and lost more. For how depegs play out more generally, see what happens when a stablecoin depegs.

Legal action followed. The SEC sued Terraform Labs and Do Kwon in February 2023, and a jury found them liable for securities fraud in April 2024. They agreed to pay more than $4.5 billion, and Terraform, which had filed for Chapter 11 bankruptcy in January 2024, agreed to wind down. Kwon pleaded guilty to wire fraud and conspiracy charges in August 2025. Prosecutors alleged that when UST slipped below its peg in May 2021, a trading firm secretly bought UST to prop it up, hiding how fragile the design was. He was sentenced to 15 years in December 2025 and ordered to forfeit over $19 million.

What is Terra Luna Classic?

After the crash, the community voted to start over. A new chain went live on May 28, 2022, with a fresh LUNA token and no algorithmic stablecoin, according to The Block. The original network was renamed Terra Classic, and its old LUNA became LUNA Classic (LUNC). Most of the new LUNA was airdropped to holders of the old tokens, much of it vesting over up to two years.

Both chains still exist as of November 2026, but they are separate networks with separate tokens. Like any coin, either can lose most of its value, as covered in what happens if crypto goes to zero.