The Terra protocol suffered the most in the 2022 selloff, turning from one of the largest crypto stablecoins to facing a significant downfall in early May of 2022.
Originally, Terra's UST coin held a stable value of $1 for years until it lost its peg due to sharply declining Bitcoin and Ethereum prices.
As a result of this loss of stability, people who used UST as a crypto version of dollars began to panic and sell their holdings, adding more pressure on the token's price.
Terra labs, the creators of UST, tried to stabilize it by using their entire Bitcoin reserves (around $3.5 billion), but unfortunately, they couldn't stop the crash once it started.
The crash didn't just affect UST stablecoin holders; it also hit the Terra governance token, $LUNA. $LUNA, which had an all-time high of $116, dropped significantly to just 1/100th of a cent.
This represented a massive loss of $45 billion in wealth in just a few weeks.
The consequences of the Terra crash rippled through the entire crypto world. Major players like 3 Arrows Capital (3AC), a large crypto hedge fund, filed for bankruptcy in July, leaving more than $2.8 billion of its creditors uncertain about their future.
Celsius, a crypto lender, also filed for bankruptcy in June with a $1.19 billion deficit, affecting other companies like Voyager Digital and BlockFi, which had to suspend client withdrawals to manage the crisis.
The impact of the Terra debacle extended beyond those directly involved, causing an estimated loss of over $500 billion in the crypto market, making it the most impactful single event in crypto history.
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