“It’s the little guy who’s being sold false promises [and] who’s getting absolutely torn apart by this,” said Molly White, a software developer who runs the website Web 3 Is Going Just Great. “It’s just an enormous failure on the part of regulators.”
A Terraform Labs spokesperson said the decision to launch a new cryptocurrency was made with large support from its community and that the company looks forward to what the future holds.
In 2018, Kwon — a Stanford University-trained engineer — started Terraform Labs, aiming to transform modern financial systems. That year, he created the Luna cryptocurrency. In 2020, the company started selling TerraUSD, calling it a stablecoin. (These coins typically peg their value to a safer asset, like the U.S. dollar.)
Unlike other stablecoins on the market, Kwon’s TerraUSD was a riskier project, experts said. It was not backed by a reserve asset, like cash. Rather, it used an algorithm to maintain its value of around $1 by linking it to the supply of Luna currency.
For a time, the Luna cryptocurrency skyrocketed in value, creating a community called “Lunatics.” In early April, it reached slightly over $116 in value. But in early May, for reasons that are still unclear, cryptocurrency investors started dumping TerraUSD in droves, causing it to lose its peg to the dollar, and spiraling Luna’s value out of control.
In the following days, the value of Luna and TerraUSD kept plummeting, ultimately losing $60 billion in value and causing over $500 billion in losses to the broader cryptocurrency market, industry data shows.
Numerous investors were furious, posting on sites like Reddit, Discord and Twitter, about how they put all their savings into Luna and TerraUSD only to see it vanish in days. Some posted about their intention to kill themselves. In Taiwan, media reports indicate a man killed himself after seeing $2 million in Luna currency plummet to roughly $1,000.
But last week, amid fierce scrutiny from lawmakers and crypto industry critics, Terraform Labs announced its plans to launch another cryptocurrency as part of its “revival strategy.”
Terraform Labs said it would “airdrop” or provide new Luna tokens to many people who lost money at the rate of 1.03 Luna coins for every Luna Classic they held, the company said.
A number of cryptocurrency investors voiced their anger and intention to not hold onto the new coin.
