Billionaire investor Bill Ackman expressed his views on the collapse of the Terra ecosystem, calling it “the crypto version of a pyramid scheme.” 

“Investors were promised 20% returns backed by a token whose value is driven only by demand from new investors in the token,” Ackman tweeted. “There is no fundamental underlying business.”

The 20% returns mentioned refer to the high yield earned on Terra’s highly-popular Anchor Protocol application. Today, those rates have dropped to 18% and are expected to drop again on June 1. 

In a series of tweets, the founder and CEO of Pershing Square Capital Management also criticized LUNA for creating artificial demand by limiting the supply through a vesting schedule. 


Vesting schedules are a common investment practice in which the investor’s tokens are locked up for a particular period called “lock-up” and distributed evenly afterward. In the case of LUNA, if an investor purchased LUNA in the seed round, the LUNA tokens were locked up for 10 to 18 months. After the lockup period, the tokens were distributed.

“LUNA appreciated by attracting more followers and by limiting the supply of tokens through a vesting schedule,” the billionaire investor wrote. “It collapsed once the supply of sellers of Luna overwhelmed the buyers.”

Ackman did, however, go on to laud blockchain technology, calling it “brilliant” and that it has “enormous potential.” 


But if the industry doesn’t get its act together, he argued, this potential may be missed.

“The crypto industry should self-regulate away other crypto projects with no underlying business models,” Ackman tweeted. “Hyping tokens that are not supported by businesses that create value will destroy the entire crypto industry.”

What was Terra?

Terra is a decentralized algorithmic stablecoin ecosystem launched by Terraform Labs led by Do Kwon in early 2018. The ecosystem comprises two tokens, namely LUNA, the native governance and staking token, and the algorithmic stablecoin UST.

UST is stabilized through a mint-and-burn mechanism involving LUNA. Users can always swap $1 worth of LUNA for UST and vice-versa. The arbitrage between LUNA and UST helps keep UST at its dollar peg. 

If the price of UST trades above a dollar, investors can mint 1 UST for $1 worth of LUNA and sell the newly minted UST for a small profit. Conversely, if UST trades under a dollar, users can buy the discounted UST, swap it for $1 in LUNA, and then sell that LUNA on the market for a small profit.

Earlier this month, this mechanism soured, with UST losing almost 90% of its dollar peg. Today, it currently trades at $0.0949, according to data from CoinMarketCap.

A crashing UST led to the wide-scale minting of LUNA, driving down demand and diluting the asset’s supply. This resulted in LUNA shedding 100% of its value in a matter of days. 

Today, LUNA trades at $0.0001819 from an all-time high of $119.18 recorded a month ago, according to data from CoinMarketCap.


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