REPLAY CASE · CRYPTO · RESOLVED MAY 12, 2022

The Luna / UST Collapse

On May 7, 2022, a $200 million withdrawal from the Anchor Protocol started a chain of arbitrage that ended five days later with the total destruction of a $40 billion stablecoin system. UST, the algorithmic stablecoin that was supposed to be 'pegged' to one dollar by the mint-and-burn mechanics of its sister token LUNA, fell to 35 cents while LUNA itself went from $80 to $0.00006. People who'd held UST as a savings instrument lost their houses. This case is what an algorithmic-stablecoin death spiral looks like in real time. The prediction market for 'Will UST drop below 95¢ by May 31' opened the week at 12% and closed it at 100%. The lesson is brutal: a peg is a promise, and the market starts pricing the broken promise the moment confidence cracks — not when the algorithm finally fails.

WHAT YOU'LL LEARN

"An algorithmic peg is only as strong as the market's belief that arbitrage will hold it. When the cost of arbitraging up exceeds the cost of selling, the peg is already gone."

· You'll watch the market process information in real time from May 8, 2022 through May 12, 2022
· You'll trade with $100 in simulated USDC. No real funds move at any point.
· After the replay ends, you'll see a debrief: what your decisions would have returned, where you anticipated the move, where you chased.

Start Replay →← Back to library ↯ Did you predict this at the time?↯ What was the news saying at the time?ADVANCED · ~78MIN AT 8×

CONTEXT

What was knowable at the time.

What was knowable on May 7

· UST had been the third-largest stablecoin behind USDT and USDC, with $18B in circulation.
· The Anchor Protocol was paying ~19.5% APY on UST deposits, funded by the Luna Foundation Guard.
· Anchor's reserve had been depleting visibly for weeks. The yield was not organic — it was a subsidy.
· The Luna Foundation had been buying Bitcoin as a backstop reserve. By early May they held ~80,000 BTC.
· Critics had been warning for over a year. Cathie Wood and others had been buying.

What broke on May 8

· A whale withdrew $375M of UST from Anchor, swapped it for USDC on Curve.
· This drained the Curve UST/3CRV pool, leaving it imbalanced.
· A second large withdrawal followed within hours.
· For ~12 hours, UST traded at 0.985 — barely a depeg, but enough to trigger the reflexive doom spiral the next morning.

ARCHIVE · 6 EVENTS

Headlines you'll see during the replay.

Each headline appears in the news feed at its original timestamp as the replay progresses. Major events get a violet left-border. This is the primary source archive: real headlines from real moments.

May 08, 12:00 PM UTC · On-chain

Anchor Protocol: $200M UST withdrawn, swapped to USDC on Curve

The match. The Curve pool became 71% UST. UST briefly traded at 98.5¢.

May 09, 02:00 PM UTC · Twitter @stablekwon

Do Kwon: 'Deploying more capital — steady lads'

Founder of Terra/Luna. The market read this as panic management.

May 09, 10:00 PM UTC · Coingecko

UST trades at 60¢ — first sustained break below 95¢

The peg was now obviously broken. LUNA had fallen from $64 to $30 in 24 hours.

May 10, 06:00 PM UTC · Luna Foundation Guard

LFG sells $1.5B in BTC reserves to defend the peg

The reserve was deployed. Markets saw it. Markets did not react with relief — they read it as confirmation of severity.

May 11, 04:00 PM UTC · Bloomberg

LUNA falls below $1 — down 99% on the week

May 12, 04:00 PM UTC · Binance

Binance halts LUNA and UST trading

Effective end-of-life for the system. UST resolved at ~17¢; LUNA at fractions of a cent.

Replay sessions use simulated funds against historical Polymarket price data. No real USDC moves at any point during a replay. Your simulated calibration is a training tool, not a promise of how you'll do with real money.