Terra 2.0 is the new iteration Terra blockchain that rebranded (forked) from original Cosmos Terra chain after May 2022. The developers periodically airdrop the new LUNA token to crypto investors who previously held more than 10,000 tokens before the stablecoin crash.
Terra is an open-source blockchain on Cosmos hosting an ecosystem of decentralized applications (dApps) and developer tools. Using proof-of-stake consensus and technologies like Mantlemint, Terrain, and Terra Station.
$LUNA is the Terra protocol’s native staking token. $LUNA is used for governance and in mining. Users stake $LUNA to validators who record and verify transactions on the blockchain in exchange for rewards from transaction fees.
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From Terra Classic (LUNC) to Terra (LUNA)
On May 25th, 2022, Terra Classic users passed governance proposal 1623, which outlined the genesis of a new Terra chain. This proposal also described a genesis distribution of $LUNA which would be airdropped to users of the Terra Classic chain based on pre-depeg and post-depeg snapshots. Users can find their airdropped $LUNA by viewing the same wallet address that was present during either snapshot and switching their Terra Station network to the phoenix-1 mainnet.
On May 27th, 2022 the phoenix-1 Terra mainnet launched, ushering in a new era of development by the Terra community.
The original Terra is a decentralized and open-source public blockchain protocol for algorithmic stablecoins. Using a combination of open market arbitrage incentives and decentralized Oracle voting, the Terra protocol creates stablecoins that track the price of fiat currency.
Users can spend, save, trade, or exchange Terra stablecoins instantly on the Terra blockchain. $LUNC provides its holders with staking rewards and governance power.
Terraform Labs created the UST coin to be an algorithmic stablecoin on the Terra network. While other stablecoins (USDC or Tether) are fiat-backed, the UST would not be backed by real assets. Instead, the value of UST would be backed by its sister token, Luna.
How much is LUNC's price?
An original Luna coin (LUNC) was going for around $116 in April 2022 and ended up dropping to a fraction of a penny before being delisted. Before that, the coin went from being worth less than $1 in early 2021 to creating many crypto millionaires within a year.
The origianal Luna token (LUNC) skyrocketed about 135% in less than two months until its peak in April 2022. The largest incentive was that you could stake your UST holdings on the Anchor lending platform for a 20% annual yield. (The Anchor Protocol was a decentralized money market built on the Terra blockchain. For more detailed information about the mechanism of LUNA & Anchor you can read Terra & Anchor - Solid Ponzi by 0xAidan ) This platform became popular for its aforementioned 20% yield for UST holders who deposited their tokens on the platform. Then Anchor would turn around and loan the deposit to another investor.
What is the relationship between TerraUSD (UST) and LUNA?
Fiat-backed stablecoins such as Tether USDT and USDC are backed by fiat currencies like US dollars. While the UST coin was not backed by an actual US Dollar but rather an algorithmic stablecoin.
To create UST you have to burn original Luna. So, for example, when original Luna's price was $85, you could trade one token for 85 UST.
For UST to retain its peg, one UST could be changed for $1 worth of original Luna at any time. If UST slipped, arbitrageurs could make money from buying UST and then exchanging it for Luna.
LUNA crash & UST off-pegged
The Luna crypto crash was caused by its connection to TerraUSD (UST). On May 7, over $2 billion worth of UST was unstaked (taken off the Anchor Protocol), and hundreds of millions of it were quickly liquidated. The huge sell-offs brought down the price of UST to $0.91, from $1. As a result, traders started to change 90 cents worth of UST for $1 of Luna.
Once a large amount of UST had been offloaded, the stablecoin started to depeg. In a panic, more people sold off UST, which led to the minting of more Luna and an increase in the circulating supply of Luna. Following this crash, crypto exchanges started to delist Luna and UST pairings. Long story short, Luna was abandoned as it became worthless.
What happened after the Luna crash?
The Luna meltdown impacted the entire cryptocurrency market, which was already highly volatile and experiencing difficulty at the time.
- Further, UST's price dropped 36% (<$0.64).
- Binance suspended withdraws for LUNA and UST.
- Crypto leaders Voyager and Celsius filed for bankruptcy.
- Three Arrows Capital (3AC) was forced into liquidation, and filed for bankruptcy.
Many people suffered from this crash, the only winners were those who exited their positions before the crash. One winner that we have to highlight is the hedge fund Pantera Capital. They saw a 100x return on an initial investment of $1.7 million. The company liquidated its Luna position prior to the collapse for a return of $171 million.
What happened to Do Kwon?
Do Kwon shared a recovery plan for Luna, and things looked promising for a brief period of time in May after the original crash.
But the coin ultimately plummeted. Luna Foundation Guard needed more than $1 billion to shore up the $UST stablecoin. It was promptly abandoned. LFG's $1 billion plan has failed.
Terra ended up launching a new coin, Luna 2.0.
On September 15, it was announced that a court in South Korea had issued an arrest warrant for Do Kwon. (Do Kwon and five other people are currently accused of violating local market laws.)
Terra was founded in January 2018 by Daniel Shin and Do Kwon. The two conceived of the project as a way to drive the rapid adoption of blockchain technology and cryptocurrency through a focus on price stability and usability.
- Prior to developing Terra, Shin co-founded and headed Ticket Monster, otherwise known as TMON. He later co-founded Fast Track Asia, a startup incubator working with entrepreneurs to build fully functional companies.
- Kwon previously founded and served as CEO of Anyfi. He has also worked as a software engineer for Microsoft and Apple.
