What happened with Terra Luna?

4 min readNov 24, 2022

The second quarter of 2022 was characterized by two shocking events (the collapse of Terra Luna and the ban of Celsius Network) that have contributed to the market down and continue to influence the crypto industry. In this article, we’ll go deeper about Terra Luna, analyze its functioning, token system, the new project, and why did Terra Luna collapse, causing a crash in the entire crypto market.

What is Terra?

Terra is, or it would be better to say, “was” a permissionless blockchain hosting an ecosystem of decentralized applications (dApps) that uses Cosmos SDK, the world’s most popular framework for building application-specific blockchains.

Founded in 2018, in South Korea, by Do Kwon and Daniel Shin, it allows users to create stablecoins pegged to fiat currencies through the consensus mechanism Delegated-Proof-of Stake (DPoS) using smart contracts.

The main goal was to create a secure payment system using a decentralized algorithmic stablecoin that could be converted into its native token, LUNA, without over-collateralized cryptocurrencies or fiat currencies. In a nutshell, the founders wanted to stabilize TerraUSD (UST) using LUNA, so 1UST was worth $1.

The stablecoins on the Terra network use a different method to maintain the peg compared to the collateral stablecoins that…