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
Created in 2018, the project was made to drive the adoption of blockchain technology while focusing on price stability and usability. The network’s native token, Luna—now Luna Classic (LUNC) —served as a governance token. The network had an algorithmic stablecoin pegged to major currencies of the world (USD, GBP, JPY, KRW, EUR, etc.). USTC is tied to USD at a 1:1 ratio.
The stablecoin, unlike some of the other popular ones, was backed by the Luna token for stability. It used a burning mechanism where excess Luna tokens are burned to create UST, thereby creating equilibrium. This mechanism will later cause the collapse of the Luna token, and it will be explained.
On the 25th of May, the Terra team announced on Twitter that Terra Classic users approved governance proposal 1623. In the tweet, they outlined the beginning of a new Terra network. This proposal also suggested a Luna genesis distribution to be airdropped to Terra Classic chain users based on pre-depeg and post-depeg snapshots. Users can find their airdropped Luna by accessing the same wallet address in either snapshot and switching their Terra Station network to the Phoenix-1 mainnet. On the same day, various exchanges announced their support for the new development.
The phoenix-1 Terra mainnet went live on May 27th, 2022, beginning a new era of development for the Terra community. And on the 28th of May, 2022, the new token dropped and was listed on various networks.
Following the change, the old Terra chain will be called Terra Classic and while the old Luna token will be renamed Luna Classic (LUNC). The new ecosystem and token will take the name of the old ones. The UST has also been renamed TerraClassicUSD (USTC). The new Terra ecosystem will not include the USTC stablecoin.
The future of the new network and its token remains very speculative and unknown. However, Crypto enthusiasts hope and believe that the token will go to the moon.
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.
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.
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
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.
A pre-depeg snapshot of Terra Classic block 7544910 (7th of May, 2022, 22:59:37+08:00) has been taken. ↩
A post-depeg snapshot of Terra Classic block 7790000 (27th of May, 2022, 00:38:08+08:00) has been taken. At the launch time, any tokens locked or vesting are staked and must be unbonded to become liquid. ↩