Under the founder’s idea, Terra blockchain will divide
On Wednesday (May 25), the founder of the unstable Terra ecosystem submitted a plan to save the project, averting the catastrophic collapse of one of the most closely followed experiments in decentralized finance.
Developers will establish a new Terra blockchain with a resurrected Luna token under the agreed plan. Terra Classic will be the name of the original blockchain, and Luna Classic will be the name of the original Luna coin, with the ticker LUNC.
According to Mr. Do Kwon, chief executive of Singapore-based Terraform Labs, the unlicensed company behind the Terra blockchain, the new Luna tokens will be distributed to previous holders of Luna and TerraUSD (UST) in an “airdrop,” relying on a snapshot taken of the old Terra network to verify participants.
Terra announced in a tweet that it would collaborate with Binance and By bit to distribute the new Luna.
The new Terra blockchain will launch a coin with the same name and ticker as Luna but without the UST stable coin.
Terraform Labs recommended Luna and UST holders transfer their tokens to native Terra wallets rather than keeping them on exchanges, as all decentralized applications and assets established on the previous Terra chain will need to transition to the new one.
Terra’s demise, which began earlier this month with the fall of the algorithmic stable coin that Mr. Kwon had pushed so hard, was one of the greatest flops in crypto history. While the outcome of Wednesday’s vote is a win for Mr. Kwon and his supporters, there are still worries about Terra’s long-term viability.
Terraform Labs is basically leaving UST as a result of the procedure, and it will now only trade on the Terra Classic network. It traded at roughly 10 cents on Wednesday, despite being designed to maintain a one-to-one peg to the US dollar.
Mr. Kwon, the crypto entrepreneur behind Terra, has advocated splitting the blockchain in half, a process known as a “hard fork” in the industry. Terraform Labs, the project’s principal operator, eventually changed his recommendation to build an entirely new Terra blockchain and leave the old network to be administered by users.
The mechanism that is doomed
To maintain its dollar peg, UST used a combination of algorithms and trading incentives to manage its supply with respect to its sister coin Luna. Those measures were meant to ensure that UST never strayed too far from its connection.
TerraForm Labs was compelled to drastically expand the quantity of Luna coins once UST began to lose its peg in the days following May 7 in order to restore the link. As a result, the price of Luna plummeted, thus killing the project and wiping off US$40 billion (S$55 billion) in total market value.
Luna gained nearly 12% after the plan was approved. Since the UST meltdown, the token has lost nearly all of its value.
Many validators and investors slammed Mr. Kwon’s suggestion, demanding reimbursement from the project’s leadership after seeing their investments plummet in value. On Wednesday, a final tally of the votes on the measure showed 65 percent in favor and 21% abstaining. Only 13% of votes were “no with veto,” falling shy of the 33.4 percent required to kill the measure.
Terra was also questioned over how it used a US$3.2 billion reserve in Bitcoin and other crypto-assets to support UST, with significant investors such as Delphi Digital and Galaxy Digital claiming they made a mistake by blindly supporting the ecosystem.