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The crypto market has been in turmoil this month. At the heart of it, the collapse of stablecoin TerraUSD (UST) and Terra (LUNA), the coin that was meant to maintain UST’s peg to $1 USD.
After UST’s peg collapsed, Bitcoin tanked to below $28,000 USD for the first time since December 2020, and almost every other cryptocurrency crashed as well.
Related: What is a Stablecoin?
What followed was confusion and outrage from investors who had held large positions in LUNA which subsequently became almost worthless overnight.
Following this catastrophic collapse of UST and LUNA, Do Kwon, the founder of Luna, released his “Terra Ecosystem Restoration Plan”.
This proposed plan was to launch a new blockchain and airdrop new tokens (LUNA 2.0) to holders of the original LUNA and UST tokens.
Terra backers voted in favour of the plan.
The aim is to resurrect the cryptocurrency, by releasing Terra 2.0; a new chain with no algorithmic stablecoin (one of the key elements that caused its downfall).
The proposal to relaunch the Terra blockchain as a ‘genesis chain’ and create Terra 2.0 (LUNA) was approved by LUNA stakers within the Terra community. Almost 66% of the community supported the plan, while 13% opposed the plan.
Following the catastrophic collapse of UST and LUNA, Do Kwon, the founder of Luna, released his “Terra Ecosystem Restoration Plan”. This proposed launching a new blockchain and airdropping new tokens (LUNA 2.0) to holders of original LUNA and UST tokens.
This new LUNA 2.0 blockchain is not a fork of Luna Classic, but a genesis chain, meaning it will start from block zero with no dApps (Decentralised applications) on launch.
It has also received good support from crypto exchanges around the world.
Binance, the world’s largest crypto exchange, revealed that they were working closely with the Terra team regarding the Terra 2.0 recovery plan.
Some other exchanges that have confirmed their support for the new token include FTX, Huobi, Bitfinex, HitBTC, and Bitrue.
From now on, the old chain will be known as Terra Classic ($LUNC), with the new genesis chain being called Terra ($LUNA).
It is a brand new chain associated with its native token, LUNA, and will replace the old blockchain, completely separating it from the stablecoin that was a major component of its demise.
LUNA tokens on the old Terra blockchain, which has been renamed now to LUNA Classic (LUNC), will be abandoned. This is because the old blockchain will eventually cease operations.
The airdrop system outlined above is Terra’s solution to transferring the remaining value of the old blockchain toward the new one.
It is difficult to say whether the new Terra blockchain will save the ecosystem.
The reason LUNA and UST collapsed was not the blockchain, it was the flawed algorithmic stablecoin Terra created. So, in order for the Terra ecosystem to truly recover, trust will have to be restored. Perhaps a shift in how they operate is needed.
That said, the fact that the new blockchain and the Terra 2.0 initiative are supported by a large portion of the Terra community and several large crypto exchanges is a very good start. Adoption is half of the battle.