Terra (LUNA/UST) and Terra Classic (LUNC): Taxation of the Collapse

In May 2022, the Terra ecosystem spectacularly collapsed: the UST stablecoin algorithm failed, and LUNA dropped from ~100 USD to fractions of a cent within days. Hundreds of thousands of investors suffered massive losses. This guide explains how to manage the tax implications of that collapse and the subsequent creation of Terra 2.0.

The Collapse of LUNA/UST: When Was the Tax Loss Generated?

Tax Loss for Original LUNA (Now LUNA Classic - LUNC)

The tax loss for the investment in LUNA is generated at the moment of effective disposal of the asset:

• If you sold LUNA during the collapse (at near-zero prices) → capital loss in the savings base for the 2022 fiscal year.
• If you did NOT sell and still hold LUNC (the renamed token) → the unrealized loss is NOT deductible until you sell.

Common Issue: Many investors saw their LUNA become virtually worthless but did not sell, hoping for a recovery. These investors could not deduct the loss in 2022 because technically, no disposal had occurred.

Can LUNA Be Declared as a Loss Without Selling?

Capital loss requires disposal. However, there are nuances:

• Loss due to total uselessness of the asset: If the asset is absolutely illiquid (no market) and has no recoverable value → a definitive loss could be argued. But LUNC continued trading (albeit at very low prices) → there is a market → loss without disposal is not applicable.
• Recommendation: Sell LUNC (even at a symbolic price) to realize the loss.

Loss for UST Stablecoin

UST lost its peg to 1 USD and traded at cents:

• UST remains a crypto asset with a market price.
• Capital loss upon sale: difference between acquisition cost (1 USD ≈ 0.92 EUR) and sale price.
• If you spent €10,000 on UST and sold it for €100 → loss of €9,900.

The Airdrop of LUNA 2.0 (Terra 2.0)

Terraform Labs conducted an airdrop of LUNA 2.0 to holders of LUNA Classic and UST:

• Holders of LUNA Classic (LUNC) before the collapse received LUNA 2.0 based on their holdings.
• Holders of UST received LUNA 2.0 proportionally.

Taxation of the LUNA 2.0 Airdrop

The LUNA 2.0 airdrop is a new asset received without consideration:

• Treatment: General taxable income (same as other airdrops).
• Valuation: Value of LUNA 2.0 in EUR at the time of receipt of the airdrop.
• If LUNA 2.0 traded very low at launch (which it did) → valuation in EUR would be minimal.
• Acquisition cost of LUNA 2.0 = value in EUR at the time of the airdrop (for future sales).

Problem: Can Losses from Original LUNA Be Offset with the LUNA 2.0 Airdrop?

• Losses from original LUNA fall under the savings base (asset disposal).
• "Income" from the LUNA 2.0 airdrop falls under the general base.
• They cannot be directly offset: different bases.

Terra Classic (LUNC) in 2025: Is There a Recovery?

Terra Classic (the original ecosystem renamed) has continued with an active community:

• LUNC is still trading (though far below pre-collapse highs).
• The LUNC burn mechanism (tax burn) reduces supply.
• LUNC staking is available.

Taxation of LUNC Staking in 2025

If you stake LUNC:

• Staking rewards → taxable savings base income.
• Value of rewards in EUR at the time of receipt.
• Sales of LUNC → taxable savings base (gains or losses based on FIFO acquisition cost).

LUNC Tax Burn: Is It a Disposal?

The "tax burn" mechanism of Terra Classic automatically burns 1.2% of each transaction:

• Burned tokens are permanently removed from supply.
• For the taxpayer initiating the transaction: burned LUNC represents an irrecoverable loss of the asset.
• Tax treatment: forced disposal of LUNC for IRPF purposes → taxable savings base (likely a loss, given current prices).
• Valuation: 1.2% of burned LUNC, valued at LUNC's EUR price at the time of the transaction × acquisition cost → minimal capital loss per transaction.

Terraform Labs Litigation and Its Impact on Investors

Terraform Labs and Do Kwon were prosecuted by the SEC (U.S.) and courts in Korea and other countries. Some affected groups pursued legal claims:

• If an investor receives compensation from a class-action lawsuit related to Terra → the indemnity may be taxable savings base or general base income, depending on its nature (capital loss vs. emergent damage/lost profits).
• Consult a lawyer to properly structure the taxation of potential compensation.

Summary of Terra Tax Events

Updated: April 2026 | Fiscal Year: 2025