Was the Luna public chain hacked that year? The crisis faced by the Luna public chain (Terra Chain) in 2022 was not a traditional "hacker attack," but rather a systemic collapse caused by flaws in the design of its algorithmic stablecoin mechanism. The core cause was the vicious cycle of the decoupling of UST (the algorithmic stablecoin on the Terra chain) and the downward spiral of the LUNA token price. 1. Fragility of the Mechanism Design The core of the Terra Chain is "UST is pegged 1:1 to the US dollar," relying on the LUNA token as the foundation for an arbitrage mechanism: When the UST price falls below $1, users can burn $1 worth of LUNA and mint one UST (arbitrageurs buy UST at a low price and burn it at a high price, driving up the UST price). When the UST price rises above $1, users can burn one UST and mint $1 worth of LUNA (arbitrageurs sell UST at a high price and mint it at a low price, driving down the UST price). This mechanism relies heavily on market confidence in LUNA and its liquidity. Once confidence collapses, the arbitrage logic fails. 2. Trigger: Massive UST Selloff In May 2022, a massive selloff of UST (presumably due to institutional liquidation, market panic, and other factors) occurred, causing the UST price to fall below the peg. At this point, a large number of users began burning UST to exchange for LUNA to stop losses, causing a surge in LUNA supply (from approximately 300 million to trillions in a short period of time), which directly led to a sharp drop in LUNA's price. 3. Vicious Cycle and Liquidity Depletion The plummeting LUNA price completely eliminated its ability to support the UST peg, further decoupling UST. Intensifying market panic, investors frantically sold off LUNA and UST, creating a death spiral of "sell-off, decoupling, and further sell-off." Ultimately, liquidity on the Terra chain was depleted, the ecosystem collapsed, LUNA's value was almost zero, and UST completely lost its value. In summary, the crisis facing the Luna public chain stemmed from the insufficient risk resilience of the algorithmic stablecoin mechanism. Under external selling pressure and market panic, the internal arbitrage mechanism failed, triggering a chain reaction, rather than an external malicious attack. This incident has also become an important case for the crypto industry to understand the risks of algorithmic stablecoins.