Terra 2.0: The Blockchain That Lost US$60 Billion Is Back, Loses 68% On First Day
When someone causes investors to lose up to US$60 billion, you’d expect authorities to put prohibitive measures to keep it from happening again. Apparently, if it’s a cryptocurrency blockchain, it gets a warm “welcome back,” instead.
Not even a month has passed since Terra collapsed after its stablecoin, TerraUSD, lost its peg to the dollar, and yet the blockchain is back on a new chain.
The so-called Terra 2.0 is still using the Luna coin, but made branding efforts to differentiate this from the Luna coin–now called Luna Classic–that also lost its value along with the Terra predecessor.
Nevertheless, confidence in the resurrected blockchain is still shaky. Starting at US$18.87 per coin on its opening day, the price crashed to US$5.96 after 24 hours. As of this writing, the value plays around US$6.50.
Why the return?
TerraUSD, or UST, differentiates itself from others as an algorithmic stablecoin. Instead of tying itself to a fiat currency or tangible asset, it relies on code and Terra’s crypto Luna to keep the dollar peg. It is designed in such a way that if its price falls to less than US$1, investors are motivated to exchange their UST tokens for Luna coins, thus eliminating UST from circulation. If the price rises above US$1, then the reverse occurs.
However, the stablecoin imploded as it lost its peg to the dollar, with the reason still being debated today. The crash caused the crypto to halt trading on the blockchain and is estimated to have cost its investors around US$60 billion.
While the Terra community called the de-peg event an “attack,” International Monetary Fund Managing Director Kristalina Georgieva called stablecoins with no assets to back itself a “pyramid [scheme].”
Amid all these, the Terra community passed Proposal 1623 which aims to revive the blockchain, but not the stablecoin.
The crypto asset’s comeback has been widely received by digital exchanges, including Bybit, Kucoin, and Huobi. The largest crypto exchange Binance also said it plans to carry Luna on its platform on Tuesday.
However, it had mixed reactions from the crypto community on Twitter, many of whom are still reeling from the effects of the de-peg event.
In an effort to win back its community, Terra is also distributing Luna tokens to holders that can show they held the Luna Classic and the UST during the “attack.” Through a process called “airdrop,” holders will receive varying percentages of their holdings if they can prove through snapshots that they held both the coin and the stable coin pre- and post-attack.
Information for this briefing was found via CNBC, The Wall Street Journal, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.