Panic at the Discord

The crypto party was as raucous as ever—and then someone turned on the lights. After a year of record-high token prices and newfound support from legacy financial institutions like Fidelity and BlackRock, reality bit hard the second week of May when the algorithmic stablecoin terraUSD (known as UST) crashed, taking down some $400 billion in crypto market cap with it.

The events that led to the meltdown have already become crypto industry lore—“the biggest ponzi death spiral collapse in the history of crypto, by a factor of 16,” according to one anonymous trader. They are, for some, an object lesson in the dangers of investing in poorly understood coins. For others, they are just the latest excuse to buy the dip. The UST token, launched by Korean entrepreneur Do Kwon’s Terraform Labs, was pegged to the U.S. dollar using a complicated supply-and-demand algorithm linked with the luna token. Over the past year and a half, UST became the third largest stablecoin on the market, as traders increasingly used it to shield their currency from the volatilities of popular coins like ether or bitcoin. Luna’s total value, in turn, swelled to over $40 billion.

But when the token’s $1 value stumbled last week after a series of large UST withdrawals, UST and luna owners panicked, sending the price of the UST token as low as $0.20 and luna practically to zero. “Welp, lost $50k in a night,” wrote one user on the terraluna Reddit group, where dozens of traders chronicled their own devastating losses.

As of this writing, UST and luna have been declared all but dead (although eccentric founder Kwon is still fighting the good fight on Twitter, proposing a “terra 2.0” chain), and cryptocurrency prices are down across the board. There’s an undeniable chill in the air, with traders bundling up for a “crypto winter” of reduced investing and trading that could last months or even years. (The last winter toiled on from 2018 to 2020.)

But if there’s anything you can count on, it’s crypto maximalists’ optimism in the face of financial ruin. Venture firm Andreessen Horowitz is euphemistically calling the post-luna environment a new “‘price-innovation’ cycle,” waxing poetic about how “winter thaws in the heat of summer.” Entrepreneurs, usually with a weary smile, are declaring the upcoming months a time for productivity. “This is when the building happens,” said Leah Callon-Butler, director of tech consulting firm Emfarsis. “Some of the biggest success stories to come out of this recent bull run were built in the last crypto winter.”

After all, industry veterans have seen the market faceplant before. Ask longtime crypto fans about 2014’s Mt. Gox hack, which saw the loss of almost half a billion dollars in cryptocurrency, or the 2016 hack of The DAO, when 3.64 million eth was stolen (currently worth about $7 billion). Sure, those fans’ voices might waver when describing past catastrophe, but plenty held firm and lived to get filthy rich another day.

Will the latest crypto crisis echo the previous ones? We asked 12 front-row observers of last week’s market crash to tell us what they’re going through. (Interviews have been edited for clarity and length.)—Margaux MacColl