LUNA 2.0 And Why It Is Controversial

Terra has relaunched a new blockchain forked from the old one, called terra 2.0 or new Terra. The new Terra can be known as LUNA 2.0, and the old one is renamed LUNC. This can be considered the biggest scandal in the cryptocurrency market since the Bitconnect exchange collapsed in 2018 resulting in billions of dollars in investor losses. Today Tokenize will discuss the birth of LUNA 2.0 and the reason why it is controversial to the most of crypto community. 

The collapse of LUNC and USTC

LUNC, the predecessor of LUNA 2.0, is the native token of the Terra 1.0, while TerraUSD (UST) is a stable coin pegged with USD at a ratio of 1:1. And Terra 1.0 holds a certain amount of LUNC as collateral for the USTC. 

When UST exceeds 1 USD, the Terra protocol encourages burning LUNC to mint UST. In contrast, UST will be burned for minting LUNC. As a result, UST prices can remain stable.

>>>Read more: How to deal with LUNA loss

On 7th and 8th May 2022, a whale sold off $285 million worth of USTC in the market. This de-pegged the price of UST from $1 to $0.98. It is not worth mentioning if Terra 1.0 had a big problem that there was a large number of UST lent in Defi platforms like Anchor. 

This platform had more than 14 billion UST in deposits at some period of time. Therefore, when whales destabilized the UST-USD rate, this FUD triggered a series of withdrawals from the DeFi platform due to extreme panic among investors.

The sell-off of UST to the market by investors made UST loses peg. Based on that, the Terra protocol’s UST stabilization mechanism was activated. The amount of LUNC minted suddenly increased and flowed into the market to save the USTC price. 

The circulating supply of LUNC had grown from 725 million to over 7000 billion tokens in a blink of an eye. Consequently, LUNC became extremely unstable and hyperinflated leading to a loss of 99.9% of its value in a short time. 

With this collapse, tens of billions of dollars of investment in LUNC holders have been lost. As a result, Do Kwon is being investigated by the Korean authority with various suspicions about the Terra 1.0 collapse. 

Controversial rebirth of LUNA 2.0

With 83 percent of validator votes cast in favor of the revitalization plan and 65 percent of votes were favor, Do Kwon’s proposal for LUNA 2.0 rebirth was approved.

The resurrection plan was initially described by Do Kwon as a “hard fork” that would divide the blockchain in two. Terraform Labs later did that job.

Even while the vote passed with surprising ease, many users chastised the outspoken executive and his staff for revising the plan last week after many had already voted for the original.

Terra 2.0 was set to be live on the mainnet on Friday, May 27, according to the Terra ecosystem’s official Twitter handle. Following that, LUNA 2.0, which was airdropped to current holders at a certain rate based on the number of LUNC in their wallets, will be accessible for trade.

Investors who own more than 10,000 LUNC tokens will receive just 30% of LUNA 2.0 at first, with the remaining 70% distributed over two years to deter them from selling all at once.

Those who held more than a million LUNC will have to wait a year before receiving LUNA 2.0, which will then be subject to a four-year vesting period.

Plenty of major exchanges have spoken out about listing LUNA 2.0 after the hard fork including Binance, KuCoin, Huobi, etc… But most users have lost their faith in the project and only consider this as an act of compensation for investors’ losses.

Investing in LUNA 2.0 is still very risky

Although it has been traded on CEXs, it is too early to predict the future of LUNA 2.0. That depends on the rebranding of Terra Labs after many investors have distrusted Terra 1.0.

In the near future, Several projects developed on Terra 1.0 will be migrated to the new blockchain. But the plan to reissue the UST coin is still being left behind.

If all dApps and platforms running on Terra 1.0 are migrated to Terra 2.0 on the right schedule, and Terra 2.0 can deliver trust and transparency, it is possible that the value of the LUNA 2.0 can increase in the future.

According to some price prediction services, their algorithm predicts that the price of LUNA 2.0 coin could reach 15$ in 2022, even 50$ in 2025. But it’s impossible to be sure because the whole cryptocurrency market has been hard influenced by investor sentiment.