Report: Terra Holders Liquidated Holdings When Crash Started

Surprising fact: at its peak, LUNA and UST reached nearly $60 billion in combined market value before the collapse.

April 2022 felt like a crypto boom. LUNA topped $116 as Anchor offered roughly 20% APY on UST. Then, in early May, UST began to wobble and the peg slipped.

The Luna Foundation Guard deployed most of its bitcoin reserves to defend the peg, yet the market reaction grew faster than the rescue could work. Exchanges paused trading, liquidity dried up, and many investors sold quickly.

This report examines who sold, when they sold, and the signals that triggered exits during the crash. We weave updated data on institutional moves—like staged sales that yielded large profits for some—into the timeline from UST’s first wobble to LUNA’s death spiral.

Key Takeaways

• April euphoria gave way to a rapid depeg and cascading sell pressure in May 2022.
• Major institutional exits and staged sales shaped liquidity and price paths during the crash.
• Reserve depletion and trading halts accelerated losses and investor exits.
• The episode shows how algorithmic stablecoins can amplify systemic risk in the crypto market.
• Terra 2.0 and token distributions followed, but many institutions remained cautious afterward.

New Analysis Highlights Terra Liquidations as UST Depeg Sparked a Market Rout

New on-chain analysis shows large UST swaps and Anchor outflows on May 7 signaled an urgent shift in market behavior.

The data stream from Curve and Anchor made the risk obvious in real time. As UST dipped under $1, traders and funds began converting positions fast.

Liquidity dried in major pools and on key exchanges. Wider spreads and slippage turned routine orders into forced selling.

LFG’s loans of $750 million in bitcoin and another $750 million in UST drew market makers into the defense. The support arrived too late to stop cascading sells.

• On-chain signals showed early exits once the peg lost a few cents.
• Thin pool liquidity and exchange stress widened losses and pushed price swings.
• Exchange halts and trading controls reflected acute fairness and volatility concerns.

How the Terra/UST Collapse Unfolded: From Peak to Death Spiral

A rapid unwind began in early May after large UST swaps exposed fragility in liquidity pools. This section gives a concise, date-driven chronology of events from market peak to network halts.

Pre-crash momentum

In March–April 2022, confidence built as Anchor offered ~20% APY and LUNA hit an all-time high near $119 on April 5. The Luna Foundation Guard purchased tens of thousands of bitcoin to bolster reserves.

The depeg sequence: May 7–12

• May 7: An ~85M UST swap to USDC flagged stress; UST slipped under $1 and early arbitrage began.
• May 8–9: LFG announced $750M BTC loans plus $750M UST; outflows from Anchor accelerated and UST fell toward $0.35.
• May 9–12: LUNA collapsed from tens of dollars to pennies as more token supply was minted in minutes and price volatility spiked.

Chain halts and exchange responses

On May 12 the terra blockchain was halted twice to protect network integrity. Major exchanges paused trading as liquidity vanished and on‑chain chaos unfolded.

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Market signals and execution instincts pushed professional teams to act fast once the peg wobbled. Capital markets players prioritized orderly exits over hope, using on-chain data and liquidity checks to guide trading decisions.

Behavioral patterns: rapid exits and dilution fears

On-chain flows showed redemptions minting more LUNA as UST swapped out. That mechanics amplified selling pressure and made the token harder to defend.

Retail often sold late amid slippage and halted pairs. Institutional holders moved earlier to avoid cascading price impact.

• Watch peg deviation, Curve liquidity, and mint/burn spikes.
• Anticipate dilution from redemptions and reduce position size.
• Execute in stages to limit market impact.

Institutional timing: early de-risking and exits

Several funds trimmed exposure well before the collapse. Pantera sold roughly 87% of its LUNA through April 2022, then cut another 8% in May, preserving a small remaining stake after a large investment gain.

CMCC exited in March over model and regulatory worries; Galaxy reported realized gains from earlier sales. These moves reflect how a firm with capital markets experience times exits using clear signals.

“Funds watched on-chain metrics and executed before liquidity vanished.”

Winners, Losers, and Contagion: What the Data Says About the Crypto Market

The collapse began in a narrow corner of the protocol layer but quickly reached major venues. Initial losses concentrated in Terra-linked assets before risk appetite evaporated across the broader crypto landscape.

Spillover to bitcoin and blue-chip tokens during the panic

Data show selling moved from algorithmic stablecoin exposure into bitcoin and other blue-chip coins. Market-makers widened spreads, and trading venues saw heavier outflows.

Institutions that de-risked early preserved more value, while late sellers faced steep slippage and margin calls.

Stablecoin stress, liquidity crunch, and retail investors’ forced selling

Stablecoin credibility fell, prompting a flight to perceived safety and shorter-term liquidity runs on platforms and DeFi pools.

Retail investors often sold into weakness as leverage and collateral calls amplified declines. Regulatory scrutiny rose as a result.

“Coins with clear reserves and transparent operations retained better confidence during the collapse.”

Luna Foundation Guard, Reserves, and the Attempted Rescue

Faced with runaway minting of LUNA, the Luna Foundation Guard poured large BTC holdings into trading venues to defend stability. The move reflected an all‑hands attempt to restore UST’s peg by using on‑hand reserves.

Reserve deployment: why billions of BTC failed to restore the peg

The luna foundation guard raised roughly $1B by selling LUNA in February to buy bitcoin. Its wallet grew to tens of thousands of BTC, eventually moving near 80,000 BTC on chain.

On May 8 LFG offered $750M in BTC loans to market makers and earmarked another $750M in UST for buys. Elliptic traced about $3.5 billion in BTC flowing to exchanges like Gemini and Binance during the defense.

Despite that scale, reserves depleted fast—LFG reported about 313 BTC by mid‑May. The reflexive mechanism that minted more LUNA as UST broke created dilution and overwhelmed the timing and size of reserve deployments.

Terra 2.0, token distributions, and prospects for recovery

After the collapse, Terraform Labs and validators approved a chain migration. Terra 2.0 launched May 28 without the algorithmic stablecoin. New tokens were distributed to prior LUNA and UST holders under vesting schedules.

“Token vesting aimed to calm markets, but governance, transparency and model doubts limited re‑engagement.”

• The rescue showed the limits of reserve-based defense and highlighted the need for verifiable reserves and clear crisis playbooks.
• Postmortems stressed transparency standards, counterparty risk controls on exchanges, and designs that avoid mint‑dilution loops between token and stablecoin.

Conclusion

The Terra episode forced investors and funds to rethink how quickly a stablecoin can unmoor market prices. The sequence of UST depegs, LFG reserve moves, chain halts and exchange stress showed how fast the crypto market can reprice.

For investors and firms, the practical lesson is clear: monitor on‑chain peg signals, reserve flows and order‑book depth. Funds that acted early preserved value, while slower traders faced steep slippage and amplified losses.

Policy and design must catch up: regulators now demand clearer reserve disclosures and redemption rights, and projects that tie tokens to dollar schemes need robust crisis playbooks. Restoring trust in the ecosystem will take time, disciplined capital, and verifiable governance—only then can tokens regain durable value.