What happened, in sequence
Terra was a blockchain with two linked tokens: UST, a stablecoin meant to hold $1, and LUNA, the network's own volatile token. The link between them was the whole design, and it was the failure.
| When | What happened |
|---|---|
| 2020–21 | Terra grows rapidly. Anchor Protocol offers about 20% yield on UST — the single largest driver of demand. |
| Early 2022 | UST reaches roughly $18 billion in supply. LUNA enters the global top ten. Nigerian and global retail pour in for the yield. |
| Early May 2022 | Large UST withdrawals begin. UST slips slightly below $1. |
| 9–10 May 2022 | The peg breaks properly. The mechanism starts minting LUNA to defend it. |
| 10–13 May 2022 | The death spiral. LUNA supply explodes from hundreds of millions to trillions of tokens. Price falls from roughly $80 to fractions of a cent. |
| Mid May 2022 | Trading halted on the chain. Exchanges delist. Roughly $40 billion of value gone. |
| After | A new chain and token launched; the original renamed Luna Classic. Neither recovered meaningfully. |
Why it was structural, not bad luck
UST was an algorithmic stablecoin. Unlike USDT or USDC, it held no dollars in reserve. Its $1 value was maintained by an arbitrage rule: you could always swap $1 of UST for $1 of LUNA and vice versa. If UST fell to $0.98, you could buy it and swap it for $1 of LUNA, pocketing the difference — and that buying was supposed to restore the peg.
The rule works while LUNA has value. Follow what happens when it does not:
UST falls below $1
Holders swap UST for LUNA to capture the arbitrage.
That swap mints new LUNA
Increasing LUNA's supply.
More LUNA supply pushes LUNA's price down
Which means each subsequent swap must mint even more LUNA to deliver $1 of value.
Which pushes LUNA down further
Faster.
Confidence in UST falls because its backstop is collapsing
So more people exit UST.
Return to step one, faster each time
Within days LUNA supply reached trillions of tokens and both assets were worthless.
The mechanism that maintained the peg is the mechanism that destroyed it. This was not an exploit or a hack. The system did exactly what it was designed to do, and what it was designed to do had no floor. Every algorithmic stablecoin has this shape.
The 20% yield — the part Nigerian savers must recognise
Anchor Protocol paid about 20% on UST deposits, and that yield was the reason most people held UST at all. It was described as sustainable.
It was not. The yield exceeded what the protocol actually earned, and the gap was covered from a reserve that was topped up by fresh capital. It was not fraud in the sense that MMM was — it was a subsidy intended to bootstrap adoption — but the effect on the person relying on it was identical. When the inflows slowed, the yield could not hold, withdrawals began, and the peg broke.
Read that description and then read a Nigerian high-yield pitch. "Stable, 20%, sustainable, backed by a real protocol." Terra was the most credible version of that sentence anyone has ever assembled — a top-ten asset, serious institutional backing, a genuine blockchain — and it still went to zero in four days. If the most credible version failed, the version in your WhatsApp group is not going to be the exception. See Nigeria's scam history.
The aftermath
Terraform Labs and its founder Do Kwon faced legal proceedings in multiple jurisdictions. Do Kwon was arrested in Montenegro in March 2023 on document charges, held through extended extradition proceedings, and subsequently extradited to face United States charges. Terraform Labs entered bankruptcy proceedings, and the US Securities and Exchange Commission pursued fraud claims relating to the representations made about the ecosystem.
None of that returned money to holders. The people who lost savings in May 2022 lost them permanently, which is the only part of the aftermath that matters practically.
The two lessons for a Nigerian holder
Never hold an algorithmic stablecoin
If a stablecoin's peg is maintained by a mechanism rather than by reserves you could in principle redeem against, it can go to zero. Hold reserve-backed stablecoins — USDT or USDC — and check their dollar price occasionally rather than assuming.
Treat any yield above what the world pays as a warning
Ask where it comes from and whether the answer survives the inflows stopping. Twenty percent on a dollar asset is not a return; it is a subsidy or a transfer, and both end.
And a third that is more about temperament: the loudest and most confident story is not the safest one. Terra had the largest community, the most vocal advocates, and the most aggressive dismissal of critics in crypto at the time. Critics who described exactly this failure mode in advance were publicly mocked. When a community's response to a specific technical criticism is mockery rather than an answer, that is information.
Should you buy LUNC or LUNA now?
Luna Classic (LUNC) and the newer LUNA token both still trade. Neither has a mechanism by which the original value returns — the supply of LUNC runs to trillions of tokens, and the new chain has minimal adoption. They trade as speculation on attention, like any other tier-4 asset, and should be sized as such if at all. There is no recovery thesis here, only a price.
We do not print prices in prose — they go stale and cost readers money. Every figure you need is live on crypto prices in naira.
Frequently asked questions
What happened to Luna and Terra?
In May 2022 Terra's algorithmic stablecoin UST lost its $1 peg, and the mechanism designed to restore it minted LUNA tokens in ever-increasing quantities. LUNA's supply went from hundreds of millions to trillions and its price from roughly $80 to fractions of a cent within days, destroying about $40 billion of value.
Why did UST fail?
Because it held no dollar reserves. Its peg depended on an arbitrage swap with LUNA, which works only while LUNA has value — and defending the peg required minting LUNA, which destroyed LUNA's value. The mechanism that maintained the peg was the mechanism that destroyed it.
What was Anchor Protocol's 20% yield?
A yield on UST deposits that exceeded what the protocol actually earned, with the gap covered from a reserve topped up by fresh capital. It was the main reason people held UST, and when inflows slowed it could not hold — which began the withdrawals that broke the peg.
What happened to Do Kwon?
He faced legal proceedings in multiple jurisdictions, was arrested in Montenegro in March 2023 on document charges, held through extended extradition proceedings, and subsequently extradited to face United States charges. Terraform Labs entered bankruptcy. None of it returned money to holders.
What is the lesson for Nigerian crypto holders?
Two things. Never hold an algorithmic stablecoin — hold reserve-backed USDT or USDC instead. And treat any yield far above what the world pays as a warning rather than an opportunity: Terra was the most credible version of "stable, 20%, sustainable" ever assembled, and it went to zero in four days.
Is LUNC or LUNA worth buying now?
There is no mechanism by which the original value returns — LUNC's supply runs to trillions of tokens and the new chain has minimal adoption. Both trade purely as speculation on attention and should be sized as tier-4 money if at all.
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Last reviewed: 2026-09-09. We update this page whenever Nigerian rules, fees or platform availability change. Nothing here is financial, tax or legal advice — see our editorial policy.
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