Amid Terra crypto turmoil, ordinary investors start to pick up the pieces

Quick Take

  • Investors in the Terra crypto ecosystem have taken to social media amid major price declines in LUNA and UST.
  • The impact of the market event was acutely felt on the community’s subreddit.

Among people watching the red line point vertically down on the price of LUNA, the native asset of the Terra blockchain network, were those whose life savings were invested. 

LUNA and its related stablecoin, TerraUSD (UST), have been set into free-fall over the last 48 hours. 

UST is supposed to be pegged to the US dollar. A combination of burn mechanics involving related token Luna and market incentives are intended to keep UST at its peg. That mechanism has broken down, and this week has seen investors and holders rushing for the exit. 

Even though the Luna Foundation Guard (LFG), a non-profit set up to support the Terra ecosystem, deployed $1.5 billion in assets on Monday to help the stablecoin return to its peg, it has not been enough. The Block reported on Tuesday that LFG is seeking more than $1 billion to support the project. 

The market cap of LUNA has shrunk from $28.9 billion a week ago to $2.1 billion, according to data from CoinGecko.

Now, as the future of Terra Labs co-founder Do Kwon’s brainchild hangs in the balance, ordinary investors are taking stock. 

Sunk costs

Finn Hatherell, a Dubliner who runs a media startup, got into crypto in 2020, having bought bitcoin after listening to Galaxy’s CEO Mike Novogratz wax lyrical about its benefits on a podcast. Months later, he noticed another tip from Novogratz on Twitter, suggesting that Luna might be a good investment. He bought €500 worth at around $0.36. 

By Christmas 2021, his Luna holdings were worth around €160,000, a level which had sustained pretty consistently, until now. 

“I had heard it could go to zero if the peg gets attacked,” says Hatherell. 

His Luna is locked up in staking pools for the next 21 days, so in theory, there is time for a recovery. He says he’s made his peace with the fact it may well go to zero, though. 

“This is a case of billionaires getting rich again,” he says, referencing the market meltdown which happened shortly after day traders discovered Gamestop:

“The game is rigged and the hedge funds are winning no matter what. I remember thinking that what happened [with Gamestop] was such a case for crypto and decentralization, but it’s happened again.”

Other people are also in similar situations. 

One person on Twitter told The Block over direct message they had more than $7,000 in LUNA on Binance, which tanked to little or less than $100. They had tried to use leverage trading to cut their losses but were still down $2,000 at the time of writing. 

“I’ve never been so shellshocked before,” they wrote. 

Another anonymous user, whose screen name is “Lunatic,” messaged to say they had lost $30,000 – a figure they said was three-quarters of their money. 

Others tweeted at Do Kwon that they were down $133,000. “I’m officially fuckin broke,” a user with the scren name “Wicklidation” wrote. “I’m beside myself.” 

The LUNA subreddit tells graver tales of loss due to crypto nosedives. Its top post on Wednesday was a story of someone who had attempted suicide during a previous downturn, urging people to take stock before they do something rash. 

“If you’re considering ending your life, I sincerely hope you re-consider your feelings. Whatever it is you’re going through, like everything else in life that ever was, shall pass. A brighter day will come, and you will be surprised how life will open its doors back up for you when you allow it to,” the user wrote. 

Another user posted a list of suicide prevention hotlines for different countries. 

Meanwhile, Kwon revealed a rescue effort to restore the UST peg earlier today. In a tweet thread, he acknowledged that the last 72 hours have been extremely tough for the Terra community and that he hopes he can help it to survive. 

Many of the losses for ordinary traders have already been booked, though, as question marks hang over future prospects of algorithmic stablecoins in general. 

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