Evaluating only Terraform Labs (LUNA/UST)’s profile at its peak — without knowing the outcome — the model ranked Market collapse as the #1 likely cause. That’s exactly how it died.
Terraform Labs built the Terra blockchain and its UST algorithmic stablecoin, which maintained its dollar peg through an arbitrage mechanism with LUNA tokens. In May 2022, a coordinated attack or panic began draining UST reserves. The mint-and-burn mechanism spiraled into hyperinflation: LUNA supply went from 343 million to 6.5 trillion tokens in days. $40B in market value vanished, triggering a crypto-wide contagion that took down several other firms.
Lesson
“Circular economic mechanisms in crypto are death spirals in waiting. When the system requires continuous external demand to maintain stability, the moment demand stops, the system collapses — and at crypto speed, that means days, not years.”