To the Moon? What the Terra Luna Story Means for Crypto.
Last month saw one of the most devastating crashes in the history of the cryptocurrency market.
The price of Terra (LUNA), the native token of the Terra system, plummeted from more than $100 a piece to a few zeros in just a few days.
The knock-on effects of this crash rippled through the entire cryptocurrency market, negatively affecting both Bitcoin (BTC) and altcoin prices.
Overall, the crash was caused by a massive $285 million sell-off in the Terra network’s algorithmic stablecoin, UST.
UST was supposed to be pegged to the U.S. dollar, but fell below $1, and the minting and placement of new coins greatly diminished its value.
And other attempts to stabilize the crash, such as Terra liquidating its bitcoin holdings, or the delisting of Luna coins on many exchanges, only accelerated its collapse.
The outspoken and sometimes offensive Terraform Labs project founder Do Kwon has also been criticized by the community for not taking the crisis seriously or addressing investor concerns.
In South Korea, where there are many Terra investors and DeFi projects, there has been a public outcry calling for legal action.
In mid-May, the crypto community nearly declared Terra “dead,” but the project saw new life and a bold rescue plan.
Luna 2: Redemption
Do Kwon brought together supporters, investors and developers to come up with a solution: hard fork the Terra network and provide compensation to UST and LUNA holders who were unable or unwilling to sell their holdings during the crash, and paid Previous UST/LUNA holders distributed 1 billion tokens.
The new blockchain is now live, called Terra 2.
The project abandoned its previous reliance on the UST stablecoin.
Instead, the focus is on the brand new Luna 2 token, also coded LUNA.
The old Luna token, currently trading at $0.0002, has been renamed Luna Classic (LUNC).
LUNC still has some hardcore supporters who oppose the fork and choose to keep its native token.
Decentralized “diehards” point out that Do Kwon’s plans to radically restructure the blockchain run counter to the ideals of cryptocurrencies.
So far, the impact of these changes on Terra 2.0 appears to be more positive.
The newly issued Luna token saw a spike in price, briefly peaking at around $30 before returning to stability and trading at around $7 at the time of writing.
While this is a far cry from the all-time highs of the original LUNA, it is a good sign of the project’s early recovery.
Impact on the cryptocurrency industry
The “rout” of Terra Luna reduced the community’s trust in the validity of purely algorithmic stablecoins, as UST proved to be far from stable.
The incident prompted governments to step in and regulate stablecoins or cryptocurrencies.
The Chinese government has highlighted the incident as one reason for its ban on cryptocurrency exchanges and has called for stricter regulation of stablecoins.
The British Treasury issued a document recommending that the Financial Market Infrastructure Special Management System (FMI SAR) act as the regulatory entity for digital settlement asset (DSA) companies, including issuers of stablecoins or digital wallets.
Terraform Labs, headquartered in South Korea (the company deregistered days before UST’s collapse), announced that it will form a new digital asset committee this month aimed at regulating cryptocurrencies.
Is LUNA a good investment right now?
The new LUNA token on the Terra 2 blockchain is the foundation for DeFi applications and smart contracts, and the cryptocurrency’s price outlook will depend on the success and adoption of these projects.
LUNA no longer relies on algorithmic stablecoins, the main bug that caused the initial crash has been removed, but it must be integrated with many other altcoin projects that support dApps (eg: Ethereum (ETH), Solana (SOL), Polkadot (DOT) etc.) to prove themselves in the market competition.
Of course, the diversification strategy suggests that you shouldn’t “put your eggs in one basket” and only invest in one cryptocurrency project, so Luna could be an interesting investment vehicle in a diverse portfolio.
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April 24, 2024
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