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Anatomy of a Stablecoin’s failure: The Terra-Luna case

Author

Listed:
  • Briola, Antonio
  • Vidal-Tomás, David
  • Wang, Yuanrong
  • Aste, Tomaso
Abstract
We quantitatively describe the main events that led to the Terra project’s failure in May 2022. We first review, in a systematic way, news from heterogeneous social media sources; we discuss the fragility of the Terra project and its vicious dependence on the Anchor protocol. We hence identify the crash’s trigger events, analysing hourly and transaction data for Bitcoin, Luna, and TerraUSD. Finally, using state-of-the-art techniques from network science, we study the evolution of dependency structures for 61 highly capitalised cryptocurrencies during the down-market and we also highlight the absence of herding behaviour analysing cross-sectional absolute deviation of returns.

Suggested Citation

  • Briola, Antonio & Vidal-Tomás, David & Wang, Yuanrong & Aste, Tomaso, 2023. "Anatomy of a Stablecoin’s failure: The Terra-Luna case," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005359
    DOI: 10.1016/j.frl.2022.103358
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    References listed on IDEAS

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    More about this item

    Keywords

    Stablecoin; Cryptocurrency; LUNA; UST; Network science; Herding;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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