Terra death spiral turns one: Searching for silver linings among the wreckage.

Quick Take

  • TerraUSD and luna crashes erased nearly $45 billion of market capitalization and set up a slew of high-profile bankruptcies from companies like FTX, Celsius and Voyager Digital.
  • “Luna was a prime beneficiary of bull market hysteria,” said one industry leader.
  • For many in traditional finance the crypto industry now “seems like a pariah,” according to an analyst.

One year ago the Terra blockchain, its algorithmic stablecoin TerraUSD and native token luna were in the midst of a free fall that quickly resulted in a crypto catastrophe that decimated nearly $45 billion of market capitalization.

Upon reflection, for many, Terra’s epic fall now doesn’t seem as shocking as it once was. “Entirely based on faith and speculation, luna was a prime beneficiary of bull market hysteria and one of the first casualties of a return to reality,” said Rich Rines, an initial contributor to Core DAO.

Terra-luna’s gargantuan crash not only evaporated billions of dollars and caused traders of all sizes to lose their money, it also quickly spread into a contagion which, in the frenzied months to follow, infected and ultimately toppled a gaggle of once-celebrated industry titans.

“When luna collapsed, the leverage in the system triggered a massive knock-on effect that ultimately shook the foundations of Celsius, Blockfi and FTX,” said Markus Levin co-founder of XYO Network, a blockchain-powered geospatial data company. “The collapse of Terra led to the collapse of the cryptocurrency industry, one domino after another, and it will never be the same,” added Gartner web3 analyst Avivah Litan.

 

Victims of contagion

Although FTX was arguably the last and most surprising domino to fall in the wake of Terra’s demise, the contagion also claimed, in addition to Celsius and BlockFi, major crypto industry players like Three Arrows Capital and Voyager Digital.

Crypto lender Celsius, hedge fund Three Arrows Capital and Voyager Digital all filed for bankruptcy in July. Trading platforms BlockFi and FTX did the same in November.

But the shockwaves are still being felt inside companies like Genesis, Gemini and Digital Currency Group, which are all still entangled in a mess triggered by the fallout.<