Why did Terra Luna fall 99.9%?

A black swan event occurred on May 11th and 12th, causing the Terra (LUNA) crypto token to plummet from $120 to $0.02, which was a 99.9 percent correction.

Bitcoin retraced to a level not seen since December 2020, when it was trading at $25,200, while the SPX dropped below 4,000 for the first time since May 2021, when it was trading at that level.

Altcoins are commonly associated with Bitcoin's strength or weakness, and the crypto markets' connection to the S&P 500 touched a 17-month high in March 2022.

Although the LUNA drop has more to do with fundamentals, it serves as a warning about the instability of cryptocurrency prices. At current cheap prices, some investors are also eager to acquire Terra (LUNA).

It was launched in Seoul, South Korea, in 2018 by Terraform Labs, which produced Terra (LUNA) and TerraUSD (UST). Do Kwon, the CEO of Terra Labs, is at the heart of the narrative.

In contrast to Tether (USDT) and USD Coin (USDC), which work similarly to an "algorithmic stablecoin," the notion of burning LUNA to "mint" UST to stabilize it if it loses its 1:1 peg to the dollar is novel.

If UST reached 0.99 and LUNA hit 1.01, a minor portion of UST and LUNA would be burned.

After a while, it started to fail.

No one knows why UST lost its peg, and Do Kwon hasn't offered an explanation to investors and the general public.

According to one theory, this was a coordinated attempt to take advantage of Terra and induce a Bitcoin meltdown, allowing 'whales' to buy in at a lower price.

In certain circles, Do Kwon, a 30-year-old who has a reputation for arrogance on Twitter, may have been the target of a personal assault. Charles Hoskinson, the inventor of Cardano, tweeted a hypothesis, which he subsequently removed.

It was reported on Twitter that a huge institution had borrowed 100,000 Bitcoin from the Gemini exchange. 

With Do Kwon's help, they could get some of that BTC for less than going via a traditional exchange. As a result of his agreement, the UST's liquidity was reduced.

Investors reportedly liquidated their LUNA holdings and unstacked their UST to sell it when this institution allegedly dumped massive sums of BTC and UST on the market, producing a liquidation cascade of leveraged longs, slippage, and panic selling.

According to the tweet, Terra was a ponzi scam that lacked the necessary BTC reserves to avoid a catastrophic failure. 

There is no evidence to support these assertions, and Gemini denies ever making such a loan. However, market manipulation is a typical occurrence in all financial markets.