What is Terra (LUNA)?
LUNA is the native token of the Terra 2.0 platform. Terra 2.0 emerged as a hard fork from the original Terra protocol, which has since been rebranded to Terra Classic (LUNC). LUNA should not be mistaken for TerraClassicUSD (UST), which was a stablecoin on the Terra Classic blockchain.
LUNA is the staking and governance token for the Terra 2.0 blockchain. Its name is notorious for being attached to the cryptocurrency crash of 2022. For the sake of clarity, the new Terra blockchain is referred to as Terra and Terra 2.0, while the old network is called Terra Classic. The up-to-date LUNA price performance is seen in the dynamic chart above.
How and Why Was Terra 2.0 Founded?
Terra 2.0 is a blockchain fork that occurred on May 27, 2022, following the crash of the stablecoin which was then known as TerraUSD (UST) and has since been renamed as TerraClassicUSD (USTC).
The original version of the Terra crypto ecosystem was created by Daniel Shin and Do Kwon. Shin is a venture capitalist and business analyst. He stepped away from the Terra project in 2020 and has since founded and is the CEO of the payment technology company Chai.
Kwon is a computer scientist and blockchain developer. He’s the CEO of Terraform Labs, the company behind LUNA, and has been actively involved in the Terra revival project. He was formerly involved with the failed stablecoin project Basis Cash.
The development of Terra Classic began in 2018. The platform officially went live over a year later. Its goal was to work towards the wide adoption of stablecoins which would be pegged to the value of fiat currencies, such as the US dollar and South Korean won while maintaining the blockchain security and censorship resistance of crypto.
Over the years, TerraUSD became one of the most popular stablecoins in the market. The LUNA asset was developed as part of the Terra ecosystem to stabilize the TerraUSD token. The link between TerraUSD and LUNA was symbiotic, as both assets were directly depending on each other for price stability.
The supply of LUNA was managed via burning and minting depending on the UST requirements, making it a potentially hyper-deflationary asset due to its limited maximum supply of 1 billion. The value of LUNA was dependent on TerraUSD’s market stability, which was the core mechanic at play during the 2022 crash.
The Terra Classic collapse started on May 9, 2022, when the UST peg to the USD was broken. As a result, its collateral collapsed to its lowest-ever point, with the LUNA price dropping to near-zero. By May 13, the Terra Classic blockchain was officially halted.
The subsequent events led to one of the biggest cryptocurrency crashes in history, affecting virtually every asset, and leading to some other algorithmic stablecoins losing their peg. Bitcoin’s value halved from $40,000 in mid-April to $20,000 two months later, leading to an even wider ripple effect throughout the market.
After the crash, Kwon announced that there was a revival plan in place. As such, the Terra 2.0 network went live after a fork on May 27. However, given the mistrust of the general public and the reputation of post-crash Terra, the LUNA price plummeted nearly instantaneously, from $19.54 at the time of launch to just $4 several hours later.
What Are the Features of Terra 2.0?
LUNA is a highly volatile asset, as can be seen from the Terra value plummeting within 24 hours of the relaunch. The overall supply is capped at 1 billion assets. Terra 2.0 was programmed to be deflationary. However, due to the crash on the old fork, the LUNA price may struggle to steadily increase over time.
The Terra 2.0 asset is primarily used for two purposes – staking and governance. Although the previous iteration also acted as collateral for the USTC token, the new blockchain does not serve such a function.
Developers can use the Terra ecosystem to program smart contracts and build decentralized apps (dApps). The platform offers a testnet, a data analysis space, and additional necessary tools for on-chain development.
Similar to the old chain, developers can build algorithmic stablecoins on Terra. It’s also possible to mint non-fungible tokens (NFTs) on Terra. The NFTs can be locked in crypto wallets or listed on marketplaces with their LUNA price.
Terra uses the Proof-of-Stake (PoS) consensus algorithm to ensure network security. Liquidity providers are incentivized to continue their contributions to the network by earning rewards. Staking incentives are calculated based on whether the user held LUNA pre-crash or not.
Terra is also used as a governance token for the network. This feature carried over from Terra Classic, as the decision to revive LUNA and launch a new blockchain was made via a governance vote. The Terra ecosystem itself is community-owned and decentralized.
What is the Difference Between Terra (LUNA) and Terra Classic (LUNC)?
The Terra Classic network maintained control over the USTC token. However, on May 9, 2022, its value was officially depegged from the US dollar. The snowball effect of the cryptocurrency crash led to the blockchain eventually forking in an attempt to revive it.
There can be some confusion regarding the asset names due to the history of Terra. The old blockchain initially hosted LUNA and UST tokens. However, after the fork, the old blockchain was renamed Terra Classic and the asset tickers were changed to LUNC (Luna Classic) and USTC (TerraClassicUSD), while the new Terra 2.0 blockchain now hosts LUNA.
Despite the initial goal, at its launch, the new Terra price did not come anywhere close to Terra Classic’s peak of $119, which was logged in April 2022, weeks before the crash.
The core difference between the Terra Classic and Terra crypto platforms is their approach toward stablecoins. After Classic’s downfall, it was decided that the new network would not host any stablecoins, thus the new LUNA token is not being used as collateral.
LUNC is considered to be an extremely volatile asset, and while the LUNA price after its relaunch did not drop as significantly, there have been concerns regarding its future.