WASHINGTON — In May, the collapse of one of the most popular U.S. dollar-pegged stablecoin projects cost investors tens of billions of dollars as they pulled out in a panic that some have compared to a bank run. But before that, the stablecoin known as terraUSD (or UST, for short) and its sister token luna, had experienced a pretty spectacular run-up — and some investors made a killing before it all collapsed.

Pantera Capital, a venture capital company, tells CNBC that it has earned 100 times its investment of $1.7 Million in luna. Hack VC the Winklevoss-backed CMCC Global didn’t share their exact gains, but CMCC told CNBC that it closed its luna position in March, while Hack reportedly got out in December.

The whole scheme was built on faith, the promise of future return, and a complicated set of codes. There wasn’t much hard money to support it.

UST, unlike USDC, a popular stablecoin pegged to dollars that has fiat assets as a reserve for tokens backing them up), was an algorithmic stablecoin which was developed and managed by Terraform Labs of Singapore. It depended on computer code to self-stabilize its valueBy creating and destroying UST, luna and other commodities in a kind of supply-and demand seesaw effect.

It worked for a time.

The luna token soared and UST kept its dollar peg. The luna token increased to over $116 in April. That’s an increase of 135% in just two months. The system was easily arbitraged by traders who could profit from any deviation in price. But perhaps the greatest incentive of the entire scheme was an accompanying lending platform, called Anchor, which promised investors a 20% annual percentage yield on their UST holdings — a rate many analysts said was unsustainable.

Widespread buy-in — and public PSAs — from respected financial institutions lent credibility to the project, further driving the narrative that the whole thing was legit.

Everyone was content until the end, when it all crashed down in May.

The project was able to hold about $3 billion of bitcoin as a reserve for UST. However, the luna price became volatile and investors rushed to sell both tokens. Prices crashed. Luna Foundation Guard tried to restore UST’s $1 pegBy spending nearly all the bitcoin that is in the reserve. The experiment didn’t succeed.

They were at their highest point luna and UST had a combined market value of almost $60 billion. Now, they’re essentially worthless.

This episode highlighted the benefits of large-scale, experienced investors over small-time investors who gamble on their hopes.

One person posted on RedditThey didn’t believe they could afford to go back to school next year after they lost money from luna and UST. Another investor affected by the crash tweetedShe and her husband had sold their home and placed a bet on luna.

Many people are considering suicide after losing everything.

One said, “I’m confused and ready to die in a chair.” commenter posted to Reddit. “I lost my entire life savings on investments in (LUNA UST), the worst is that three weeks ago, I proposed to my girlfriend. My losses of 62 000 dollars are beyond her comprehension. It’s me here, and I have no idea what I should do.”

Pantera Capital CEO Dan Morehead was still selling the fund, even though it was being sold. joined CNBC in Dec. 2021 to talk about his top altcoin picksThe Terra blockchain’s luna token was included in the. Luna was higher than 15800% at the time and will rise more than 15,0000% in 2021.

Morehead stated that luna is “one of the most promising coins in the next year.” It is being discovered by many and traded only recently.

Krug claims that the initial decision by the firm to liquidate was based on risk management and rebalancing of the fund.

Krug stated that the reason Krug sold a large amount of this fund over 2021, and part 2022 was because it was simple to manage risk. It grew in size and we decided to remove it from the hedge fund. You can’t run a liquid fund if one position is a large percentage of the entire fund.

Pantera noticed that the UST $1 peg broke in May. It was then sold again.

Krug stated that “it was just seeing the currency break its peg by a few Cents” and noted that most currencies get hammered after it has broken its peg. UST is able to trade under its peg even though it owned a few luna instead of UST. The dynamic of this is that more luna are minted which lowers the total value of all coins.

Krug stated, “So you basically want to sell them it so they don’t become diluted.”

CMCC Global, a venture company based in Hong Kong was among Terraform’s initial seed investors.

Martin Baumann (CMCC founder) tells CNBC that the company decided to sell its share in March over concerns that arose from continued due diligence. While the decision to sell had some to do partly with the technology behind UST’s, Baumann was more concerned about regulation.

Baumann states that UST “was effectively increasing the money supply in existence” as opposed to asset-backed stablecoins which are derivatives existing USD in circulation. Baumann points out that this job is reserved for Federal Reserve.

Baumann said, “While it was an attractive concept, the regulators would not allow tampering in with the money supply of USD.”

Rapid growth in UST only accelerated CMCC’s worries.

The luna token traded at around $100 when CMCC was sold. Baumann denied that the company provided information on the profits from the sale of CMCC.

Hack VC is a crypto-centric venture capital fund reportedly exited its Luna stake in December.

CNBC reached out Rodney Yesep (Hack VC Partner), but he declined to respond to our inquiry about the profitability of this sale. Yesep did say in a recent interviewDeFi Decoded Podcast: They were Terra seed investors back in “back in days” before it became “like another entity.”

Yesep stated in the podcast that “It is painful to see so many people affected by this kind of stuff.” Although we were not in a good position at the time of the downturn, many people were and still are.

Galaxy Digital, which was founded by Mike Novogratz (billionaire investor), is another crypto merchant bank.

In a public letter addressed to “shareholders, friends, partners, and the crypto community,” Novogratz — who got a luna tattoo on his arm to memorialize his status as an official ‘Lunatic’ — opined on where the project went wrong, but also noted that Galaxy took profits along the way.

The following is a description of the product: Q1 earnings filingGalaxy stated that sales of luna were the biggest contributor to their $355 million net realized digital asset gain.

Terraform Labs was also supported by some major venture capitalists, such as Coinbase Ventures and Lightspeed Venture Partners. Jump Crypto, Three Arrows Capital, and Jump Crypto invested in the luna token. CNBC does not know how these firms performed.

Terra’s supporters voted for the revival of their failed venture. The proposed re-buildIt involves the creation of a Terra blockchain, and the elimination of the unstable stablecoin which was responsible for the initial project’s collapse. The redemption of institutional and retail investors could come as a result.

If you suffered a significant loss in the initial investment, the relaunch may offer an opportunity for you to recover your losses.

Delphi Digital has, by way of example, disclosed it is “currently sitting on a large unrealized loss”Miscalculating the danger of a death spiral occurring, Coindesk reporting shows thatSeoul-based Hashed Ventures is down more than $3.5 Billion

The terra 2.0 proposalIt also includes a plan for token distribution to old luna holders (soon to renamed “luna classical”) and UST tokens. The rebranded coins could offer investors a way to redeem losses.

People who had gotten out in the past before things got bad for UST are now steering clear.

Pantera Capital’s Krug said that the new chain “looks like a large chunk of the tokens airdropped will be vested over the course of a few years.” We have projects that integrate with Terra in our portfolio. Although I would love to see something community-driven succeed, we are a relatively chain-agnostic fund.

Baumann from CMCC Global said that they have decided not to invest in the revived terra system at this point.

Days before the UST collapse, Terraform Labs founder Do Kwon — who has bragged that he doesn’t “debate the poor” — said in an interviewWhile 95% would “die”, there’s “entertainment” in seeing companies go bust.