Let Terra Die

Do Kwon's proposal to fork the failed stablecoin network isn't what LUNA holders want, nor will it help them.

AccessTimeIconMay 18, 2022 at 4:31 p.m. UTC
Updated May 11, 2023 at 6:14 p.m. UTC
AccessTimeIconMay 18, 2022 at 4:31 p.m. UTCUpdated May 11, 2023 at 6:14 p.m. UTCLayer 2
AccessTimeIconMay 18, 2022 at 4:31 p.m. UTCUpdated May 11, 2023 at 6:14 p.m. UTCLayer 2

The scale of the human wreckage and pain inflicted by Do Kwon through the collapse of his fatally flawed Terra blockchain and reckless egotism continues to reveal itself. It is now clear that the promise of 20% returns on “stable” savings placed in the network’s Anchor protocol attracted scores of average people to pile in, with catastrophic results.

Those victims are understandably interested in plans to rebuild Terra, and, one hopes, to regain the value of the effectively worthless tokens they are left holding. Kwon’s blockchain was built around a stablecoin, UST, and a related free-floating cryptocurrency, LUNA, meant to keep the stablecoin algorithmically pegged at $1.

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The battered Luna community is now debating plans to fork assets to a new chain and potentially redistribute the Terra team’s remaining treasury assets to “small” traders based on what they were holding on the old chain and when.

This distribution discussion is complicated and also a complete waste of time because there should be no reconstitution of Terra at all.

Certainly, Terra shouldn't be rebuilt by the team that developed such a flawed network in the first place. And even more certainly, Terra shouldn’t be rebuilt using money that by rights should be returned to the people who made the mistake of trusting Kwon in the first place.

Luna holders seem to agree – over 90% of voters were against Kwon’s latest “recovery plan” (which seemed to have mostly left out the “plan” part).

We shall (not) arise

There are many, many reasons Terra should be left to die.

First and foremost, Terra shouldn’t be reconstituted because its stablecoin mechanism has already proven to be broken. Kwon himself has previously acknowledged that. In fact, one of the only technical or strategic elements of his restart proposal is decoupling UST from Luna.

But Kwon’s declaration on Monday that “Terra is more than UST” has got to be one of the more ridiculous and misleading statements yet from a man known for them. Terra isn’t more than UST: The “decentralized dollar” was the chain’s main purpose and reason for existing. Everything else was window dressing.

Binance CEO Changpeng Zhao agreed, and described an earlier proposal to fork and relaunch Luna as “wishful thinking.”

So removing UST from Terra will result in a chain with no real reason to exist and no real reason to hope for any kind of price recovery or stability. Kwon’s insistence that the Terra community is great is just a friendly way of saying, “I’ve got no ideas, let’s ask the audience.”

The second reason Terra shouldn’t be restarted is related to the first. With trust in leadership broken and no fundamental reason for existing, you can safely assume that the project’s new cryptocurrency would sell off aggressively as soon as it was launched (though the plan does include some lockups).

This could give insiders yet another chance to market holdings they know are fundamentally worthless and dump those holdings onto retail traders still high on a mix of hopium and despair. We’ve seen over the last few days that low-information speculators continue to buy the worthless LUNA token, and so there’s no reason to think they would stop on a new chain.

The final reason Luna shouldn’t be reconstituted is that Kwon shouldn’t continue to have a platform within the blockchain industry. He has proven himself both inept and toxic, and there is increasing evidence of explicitly deceptive behavior. That includes failing to disclose his work on a failed algorithmic stablecoin called basis cash and marketing materials that dramatically overstated UST’s stability.

We will learn a lot more about Kwon’s choices in the coming months and years, as we’re now seeing reports of a wave of civil and criminal proceedings launched against Kwon and Terraform Labs. Those proceedings could also lead to the only thing that might resemble justice here: taking real money from the pockets of Do Kwon and his collaborators and giving it back to the people they so dramatically failed.

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David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.