- Terraform Labs founded in 2018 and saw explosive growth with its TerraUSD stablecoin before collapsing in 2022
- TerraUSD and Luna crashed in May 2022 due to a death spiral, wiping out $45 billion in market cap
- The implosion sparked legal issues and investor lawsuits, serving as a cautionary tale on algorithmic stablecoin risks
Terraform Labs was a blockchain startup that created Terra, a payment platform for algorithmic stablecoins. Founded in 2018 in South Korea, the company saw meteoric growth before a devastating collapse in 2022. This article explores the history of Terraform Labs and the factors that led to its downfall.
Founding and Early Success
Terraform Labs was founded in 2018 by Do Kwon and Daniel Shin in Seoul. The company launched its first stablecoin, TerraUSD (UST), in 2019, attracting major venture capital investors like Arrington Capital and Coinbase Ventures.
Within a few years, Terraform Labs developed a thriving ecosystem of DeFi apps like Anchor Protocol and Mirror Protocol. Demand for UST soared as users were drawn to its promise of high yields. By early 2022, UST had a market cap of over $18 billion, cementing its status as a top 10 cryptocurrency.
The Collapse of UST and Luna
Despite its meteoric rise, cracks began to show in Terra’s stablecoin model in 2022. A massive selloff occurred in May, breaking the peg between UST and the US dollar. This set off a death spiral that crashed the value of UST and its sister token, Luna.
In just one week, over $45 billion in market cap was wiped out. The Terra blockchain was temporarily shut down, leaving UST and Luna holders with huge losses.
Fallout
The implosion of Terraform Labs sparked several legal issues. Co-founder Do Kwon had an arrest warrant issued in South Korea and was put on Interpol’s wanted list. Investors filed lawsuits accusing Terraform Labs of fraud.
While Terra Classic still exists as a separate chain, the original Terra ecosystem will likely never recover. The collapse serves as a cautionary tale on the risks of algorithmic stablecoins. Terraform Labs provides an infamous example of how even the most promising crypto startups can crash in a matter of days.
Conclusion
In just a few years, Terraform Labs grew exponentially by promoting decentralized stablecoins. But design flaws in its algorithmic model led to total system failure in 2022. The company offers important lessons for the future on stablecoin risks and the need for accountability in crypto.
