Why did TerraUSD collapse on Monday 5/9/2022?

TerraUSD (UST), an algorithmic stablecoin developed by Singapore-based Terraform Labs and founded by Daniel Shin and Do Kwan, crashed 90% during the week of 5/9/2022.

In order for UST to maintain its US dollar peg at $1 USD, it has to work side-by-side with its sister token, LUNA. In the events of market fluctuation, LUNA tokens are burned and swapped for UST to maintain its supply in the market.

On Monday 5/9/2022, TerraUSD instantaneously deviated from its price, and “depegged” from USD. This was soon followed by the massive selling pressure which led to the abrupt crash in the prices for both UST and LUNA, up to 99% of its original price as of 5/13/2022.

The fight between the Wall Street Institutions vs Crypto world?

Although it has not been confirmed, news on the street is that it has been a market manipulation by the Wall Street and big hedge funds, like Citadel, the clearing house and high frequency trading firm.

The financial institutions bought over 100k BTC, swapped for UST and the bought even more UST from the Terra Foundation at a discount rate. After securing loads of UST coins in hand, they started selling all their UST and BTC and dumped into the market. This action caused a flash crash of UST with a sudden increase in the tokens supply and triggered a panic sell of many investors, including users in Anchor, a landing and borrowing protocol for Terra (Luna), offering up to 19.5% staking interest rate.

Immediately following the de-peg event, the TerraFoundation attemped to counter the temporary de-peg on Monday, by pulling in millions of Luna. With further widespread concerns over the UST, Lunar, BTC in the public, more panic sell continued and eventually caused UST and Luna to drop 99% of their initial value.

The Wall Street institutions can now buy back their BTC at extremely low prices.