CASE-11 · 20 min
A documented collapse
Type of case study: Documented incident. Every figure is quoted from a named source and cited in the evidence register below. How far each source was checked is stated on the record itself.
Scenario
Unlike the other case studies here, this one describes a real incident: the collapse of the algorithmic stablecoin TerraUSD in May 2022. Every figure below comes from the Bank for International Settlements' 2022 Annual Economic Report (EVD-2026-0009) and can be read there. The task is not to retell the incident — it is to determine which part of the record was gatherable from public data before May 2022 and which part only exists afterwards.
Data
- Mechanism (per the BIS report)
- 1 UST was convertible into USD 1 worth of Luna, and vice versa
- Standing before the collapse
- third largest stablecoin
- Peak market capitalization
- USD 18.7bn
- Course of events in May 2022
- from USD 1 to a few cents within days
- Contagion (per the BIS report)
- largest stablecoin briefly at USD 0.95
- Outflows there in the following weeks
- over USD 10bn
- Provenance of every figure
- EVD-2026-0009, verification: details checked
Questions
Split the six figures by whether they were gatherable before May 2022 or only came into existence afterwards. What follows for an analysis written in April 2022?
In 2023 the Financial Stability Board concluded that DeFi does not differ substantially from traditional finance in its functions or vulnerabilities (EVD-2026-0010). Which of the vulnerabilities it names does this incident display — and what does that conclusion expressly not permit you to say about any protocol today?
Analysis dimensions exercised
Sources
- EVD-2026-0009 — Bank for International Settlements: BIS Annual Economic Report 2022, Chapter III: The future monetary system
- EVD-2026-0010 — Financial Stability Board: The Financial Stability Risks of Decentralised Finance
Institutional perspectives
Bank · Insurance · Asset management · Advisory