Incident report
Terraform Labs / TerraUSD
TerraUSD was marketed as a crypto-native dollar with elegant mechanics. Its real risk sat in the reflexive loop between UST, LUNA, market confidence, and Anchor's high-yield demand engine.
Key operator
Do Kwon
Co-founder and CEO
Photo: Court and regulator public record
Damage / claims
$40 billion market-value collapse cited by SEC
Affected clients
Countless retail investors cited by the SEC
Collapse value
$4.47B SEC settlement terms approved
Public outcome
Civil fraud verdict and settlement
What Happened
Terraform and Do Kwon were found liable in a U.S. SEC civil fraud case and agreed to settlement terms above $4.5 billion.
UST relied on arbitrage and LUNA issuance to defend its peg rather than cash-like reserves.
Anchor Protocol's high yields created demand for UST but also concentrated confidence in one incentive loop.
When the peg broke, redemptions and LUNA issuance spiraled, destroying market value rapidly.
Timeline
- 2018Terraform Labs begins building the Terra ecosystem.
- 2021UST and Anchor growth accelerate with high advertised yields.
- May 2022UST de-pegs and LUNA collapses close to zero.
- Jun 2024SEC announces more than $4.5 billion in settlement terms after fraud verdict.