LUNA and FTX: The 2022 Crash That Wiped $1.4 Trillion Off Crypto

On 7 May 2022 a digital dollar called UST, which was supposed to be worth exactly $1 at all times, slipped to 99 cents. Six days later it was worth less than 20 cents, and its sister coin LUNA, which had traded at $119 a month earlier, was worth less than a penny. Around $40 billion had gone.

That was the first domino. By November a hedge fund, two of the biggest crypto lenders and the world's second-largest crypto exchange had followed it into bankruptcy. The total value of all cryptocurrencies fell from about $2.3 trillion at the start of the year to $829 billion at the end, according to CoinGecko's annual report. One bitcoin fell from about $46,000 on New Year's Day to about $15,500 on 21 November.

May: the digital dollar that was not backed by dollars

UST was a stablecoin: a crypto token meant to hold a steady $1 value, like a digital dollar bill. Most stablecoins do this by keeping real dollars or Treasury bills in a bank. UST, created by Do Kwon's company Terraform Labs in South Korea and Singapore, did not. It relied on a formula. Anyone could swap one UST for $1 worth of newly created LUNA, and the other way round, so traders were supposed to profit by pushing the price back to $1 whenever it wandered.

The formula only worked while people wanted LUNA. Demand for UST came largely from Anchor, a Terra savings product that paid close to 20% a year interest, far above any bank. When big holders started pulling money out of Anchor and selling UST, the swaps kicked in. Every UST traded in created more LUNA, the extra LUNA pushed its price down, and a falling LUNA made UST less trustworthy, so more people sold. The industry calls this a death spiral. Trillions of new LUNA were printed in a few days. A foundation set up by Kwon spent most of a roughly $3 billion bitcoin reserve trying to hold the peg, and failed.

The losers ranged from funds to savers. Moderators of the main Terra discussion forum on Reddit posted suicide hotline numbers as the price collapsed.

June and July: the borrowers and the lenders

One of the biggest holders of LUNA was Three Arrows Capital, or 3AC, a Singapore hedge fund run by Su Zhu and Kyle Davies that had borrowed billions from almost every crypto lender, often with little or no security. When LUNA went to zero, 3AC could not repay. It was ordered into liquidation in the British Virgin Islands on 27 June. Its creditors later filed claims totalling about $3.4 billion.

The lenders were the next to fall. They worked like high-interest savings accounts: customers deposited crypto, were promised yields that could top 10% a year, and the lender loaned the money on to funds like 3AC. Celsius Network, run by Alex Mashinsky, who told customers to "unbank yourself", froze all withdrawals on 12 June and filed for bankruptcy on 13 July, owing customers about $4.7 billion. Voyager Digital, a broker listed in Toronto, had lent 3AC more than $650 million and filed for bankruptcy on 5 July. BlockFi survived the summer only by taking a $400 million credit line from FTX.

Behind each bankruptcy were ordinary customers. Celsius customers sent the bankruptcy judge, Martin Glenn, letter after letter describing lost savings, pensions and house deposits. Many had treated a crypto lender as a bank, and found that it was not one.

November: FTX

FTX was the rescuer. Its founder, Sam Bankman-Fried, then 30, had lent money to troubled firms over the summer and was treated in Washington as the respectable face of crypto. FTX was an exchange: a marketplace where customers kept money to trade, like an online broker. It also had a sister company, Alameda Research, a trading firm Bankman-Fried owned.

On 2 November CoinDesk reporter Ian Allison published a leaked Alameda balance sheet. Much of the firm's $14.6 billion in assets was FTT, a token FTX had invented itself, a bit like a company propping up its accounts with vouchers it printed. On 6 November Changpeng Zhao, head of the rival exchange Binance, said Binance would sell its FTT. Customers rushed to withdraw, a classic bank run, and FTX could not pay them, because their money was not there. Binance agreed to buy FTX on 8 November and backed out the next day. On 11 November FTX filed for bankruptcy, Bankman-Fried resigned, and the same night about $477 million was drained from FTX wallets in a hack.

Prosecutors later showed that FTX had sent customer deposits to Alameda, which used them for trading, loans, property, political donations and venture bets. About $8 billion of customer money was missing. BlockFi filed for bankruptcy on 28 November, and Genesis, the lending arm of Digital Currency Group, froze withdrawals in November and filed in January 2023.

Where they are now

Most of the people at the top are in prison. Bankman-Fried was convicted on seven counts of fraud and conspiracy in November 2023 and sentenced to 25 years; on 12 June 2026 the US Court of Appeals for the Second Circuit rejected his appeal. Do Kwon was arrested in Montenegro in March 2023 travelling on a false passport, extradited to New York, pleaded guilty to fraud and was sentenced to 15 years on 11 December 2025. Mashinsky pleaded guilty and was sentenced to 12 years in May 2025. Su Zhu spent four months in a Singapore jail in 2023 for failing to cooperate with 3AC's liquidators; neither he nor Davies has been charged with a crime.

The money has partly come back. FTX's estate had paid out nearly $10 billion by July 2026, enough to give customers more than the dollar value of their accounts, but valued at November 2022 prices, when bitcoin was below $17,000. Celsius creditors had received more than $3.4 billion, according to the New York Attorney General. Customers who held bitcoin at either firm were repaid far less, in real terms, than if they had simply kept the coins.

Bitcoin itself got back above its January 2022 level in January 2024, when US regulators approved the first bitcoin exchange-traded funds, and set new records that March. The 2022 crash did not end crypto. It ended the idea that crypto lenders and exchanges could be trusted without anyone checking their books.