The summer of 2021 will forever be remembered as DeFi summer in crypto land. Arising from the darkness of 2020’s crypto winter, the decentralized finance sector had grown more than eight-fold by May of last year before peaking at $250 billion in market capitalization in December.
Three quarters later, old man winter is back. His calling card: the collapse of UST, an algorithmic stablecoin pegged to the U.S. dollar and steadied by the cryptocurrency luna. Two weeks ago, a handful of investors staged an attack on UST, in a move recalling George Soros’ siege of the British pound, knocking terra off its peg and sending luna into a tailspin. The outcome was the same in both cases—decimation. For UST investors, $50 billion of value evaporated in a few hours after a desperate effort to shore up the prices of both terra and luna failed.
The fall of UST sowed doubt that cascaded into the broader DeFi ecosystem. Ethereum and bitcoin plummeted 56% from their all-time highs. With all that loss in the air, despair and blame abounded—and extended far beyond crypto. As Sequoia Capital’s recent slide deck for founders put it: “R.I.P. Good Times.”