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

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  • 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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    Cited by:

    1. José Almeida & Tiago Cruz Gonçalves, 2023. "A Decade of Cryptocurrency Investment Literature: A Cluster-Based Systematic Analysis," IJFS, MDPI, vol. 11(2), pages 1-20, May.
    2. Arman Abgaryan & Utkarsh Sharma, 2023. "Intermediating DFMM Asset (IDA)," Papers 2311.05234, arXiv.org.
    3. Ravi Kashyap, 2023. "DeFi Security: Turning The Weakest Link Into The Strongest Attraction," Papers 2312.00033, arXiv.org.
    4. Piñeiro-Chousa, Juan & Šević, Aleksandar & González-López, Isaac, 2023. "Impact of social metrics in decentralized finance," Journal of Business Research, Elsevier, vol. 158(C).
    5. Gordon, Steven & Li, Zhi & Marthinsen, John, 2023. "A deep analysis of the economics and finance research on cryptocurrencies," Economics Letters, Elsevier, vol. 228(C).
    6. Bennett, Donyetta & Mekelburg, Erik & Williams, T.H., 2023. "BeFi meets DeFi: A behavioral finance approach to decentralized finance asset pricing," Research in International Business and Finance, Elsevier, vol. 65(C).
    7. Raphael Auer & Bernhard Haslhofer & Stefan Kitzler & Pietro Saggese & Friedhelm Victor, 2023. "The Technology of Decentralized Finance (DeFi)," BIS Working Papers 1066, Bank for International Settlements.
    8. Bank for International Settlements, 2024. "The economic implications of services in the metaverse," BIS Papers, Bank for International Settlements, number 144.
    9. David Vidal-Tom'as & Antonio Briola & Tomaso Aste, 2023. "FTX's downfall and Binance's consolidation: The fragility of centralised digital finance," Papers 2302.11371, arXiv.org, revised Dec 2023.

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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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