The Terra network (now Terra Classic) and its tokens are among the most talked about topics in the crypto market. The network is known for investing in dApps to increase user growth and its stablecoin, USTC (pegged to the USD and backed by Luna Classic token). However, earlier this month, the value of Luna kept dropping until it fell below $0 days later. The value of the USTC also dropped way below the standard $1 and lost its peg to the USD.
Various individuals from different walks of life lost their money due to the crash. For instance, a YouTuber named KSICRYPTO tweeted about losing his $2.8 million investment in LUNA turned into $1,000. However, before discussing what could have caused the collapse, this article will cover the Terra network—old and new and its native token.
About the Terra Network
Terra network or Terra 2.0 is an open-source blockchain network that emerged from Terra Classic. It is run by the new native token—LUNA. The goal of Terra is to maximize the potential of blockchain technology and make a fully decentralized payment system. Hence, it has low transaction fees and payment channels in its ecosystem.
The Terra blockchain was created by co-founders Daniel Shin and Do Kwon in 2018. However, due to the collapse, a new Terra was launched on May 28, 2022.
Terra: Past, Present and Future
Past
Launched in 2018, the project aimed to promote blockchain adoption, emphasizing price stability and usability. The network's original token, Luna, now known as Luna Classic (LUNC), functioned as a governance token. It featured an algorithmic stablecoin linked to major world currencies (USD, GBP, JPY, KRW, EUR, etc.). USTC, tied to the USD at a 1:1 ratio, was unique as it was backed by the Luna token for stability. Luna tokens were burned to produce UST, maintaining balance. This process eventually led to the collapse of the Luna token.
Present
On May 25, the Terra team announced via Twitter the approval of governance proposal 1623 by Terra Classic users. This marked the start of a new Terra network and proposed a Luna genesis distribution airdrop to Terra Classic users, based on snapshots taken before and after the depegging. Users can find their airdropped Luna by accessing the same wallet address in either snapshot and switching their network to the Phoenix-1 mainnet on Terra Station. Following this, various exchanges supported the new development.
The Phoenix-1 Terra mainnet became operational on May 27th, 2022, signaling a new phase for the Terra community. The next day, the new token was introduced and listed on several platforms.
Subsequently, the original Terra chain was renamed Terra Classic, and its token became Luna Classic (LUNC). The new ecosystem and token assumed the former names, while UST was rebranded as TerraClassicUSD (USTC). Notably, the new Terra ecosystem excluded the USTC stablecoin.
Future
The future of the revamped network and its token is uncertain and speculative. Crypto enthusiasts are hopeful, anticipating significant growth for the token.
What is Luna Token?
The Terra network native token is Luna. Luna is used for mining and governance. Validators record and verify transactions on the blockchain in exchange for transaction fees, and users stake Luna to them.
Phases of Luna Token?
Delegators must bond their Luna to a validator to begin collecting rewards. The bonding mechanism adds a validator’s Luna to their stake, making it easier for validators to join in consensus.
The LUNA coin can exist in three different periods.
- Unbonded: In this period, coins could be used freely to transact. Unbonded LUNA can be used for anything since you own the coins.
- Bonded: It is staked LUNA. With staked LUNA, your coins generate rewards for the validators and delegators to which it is bonded. If you are staking LUNA, you can’t trade freely as it is locked into the ecosystem until you unbond it.
- Unbonding: This is a 21-day period when LUNA is unstaking. You will not get any staking reward. You can’t trade within the period. Once the period is over, you will have your LUNA back to its unbonded state.
LUNC and USTC Collapse
It is hard to believe that Luna Classic was one of the top cryptocurrencies at the beginning of May, with billions of dollars flowing into it. But then, all it took was a downtrend for the token’s value to drop below $0 (currently $0.00014). The Stablecoins USTC, which was supposed to sit at $1, now sits at $0.27. So, what exactly caused the collapse?
The LUNC token collapsed because the USTC lost its peg from the USD. Due to the drop in the value of USTC, the company burnt more LUNC to bring it back to its original value. The more the stable coin dropped in value, the more LUNC tokens were minted and burnt. This led to hyperinflation, and the value of LUNC dropped massively. This USTC was linked to the dollar through an ineffective mechanism, which resulted in a domino effect that wiped out Luna Classic.
Recovery Plan
The ‘Terra Ecosystem Revival Plan 2’ created by Do Kwon suggested creating a new network and token. The revival plan detailed everything you need to know about the new token and its distribution. Whether the plan will work depends on how well the new token performs in the crypto market.
Terra’s Tokenomics
The sale of Luna tokens started on May 28, 2022. Following its release, the network will airdrop Terra Luna token across LUNA Classic stakers, LUNA Classic holders, remaining USTC holders, and important app developers committed to creating Terra. There is a max supply of 1 billion tokens, which will be distributed as follows:
- The community pool is to get 30% (300 million)
- Pre-attack 1 LUNC holders will be allocated 35% (350 million)
- Pre-attack USTC holders are to get 10% (100 million)
- Post-attack 2 LUNC holders will get 10% (100 million)
- Post-attack USTC holders are to get 15% (150 million).
The token started trading at around $17 at the time of its launch on the 28th but has since dropped in value. Luna’s price is $6.10 (less than 64.1%) at writing, with a 24-hour trading volume of $129,780,244. There is no available circulating supply, and it has a maximum supply of 1 billion LUNA.
Terra Luna Is Available on Guarda
Explore Terra on Guarda (https://guarda.com/). Terra is the most talked about blockchain network among crypto enthusiasts in the ever-developing world. Many dApps will migrate from the Terra Classic network to the Terra network following its rebirth, so be on the lookout.
