1. The Terra Fiasco
No scary crypto incident list could ever be complete without this year’s Terra debacle. A once attractive project with a thriving ecosystem and the charismatic Do Kwon at its helm, the Terra project rose to prominence as quickly as it receded, leaving hundreds of thousands of investors in shambles in the process.
Unfortunately, it was largely one component of the Terra ecosystem that proved to be the crux of its inevitable downfall: algorithmic stablecoin UST. UST was linked to LUNA, the price of which was determined by the market. While UST’s status as always being equal to 1 LUNA generated arbitrage opportunities, it also left the entire ecosystem in danger of exploitation.
And exploitation is exactly what happened. In early May, 2022, unknown whales began swapping hundreds of millions of UST for USDC on Terra’s lending protocol, Anchor, where investors staked their UST in order to earn juicy 20% yields….
