Terra, a once-$40 billion digital asset ecosystem, crumbled in May 2022 in what may have marked the largest token collapse in crypto history.
UST, once the largest algorithmic stablecoin, and its twin token LUNA, which was supposed to stabilize UST’s price, spiraled almost to zero within a week. Prior to the collapse, both UST and LUNA were top 10 cryptocurrencies. The Terra blockchain needed to be halted twice during the crisis.
Countless investors lost their life savings in the demise. Developers who worked on Terra-related projects found their livelihoods in jeopardy, and other blockchains, such as Polygon and Kadena, were courting those devs with multimillion-dollar funds.
One part of the community decided to stay and focus on how to revive the project, with Do Kwon, the founder of Terra blockchain developer firm Terraform Labs, spearheading the attempt.
As a result, now there are two Terra blockchains operating in parallel:
- The old (original) Terra network with the token renamed to luna classic (LUNC) and UST tokens.
- A newly launched blockchain with a native token called luna (LUNA).
If you feel confused, you are not alone. Here’s a guide to what has changed with revival.
Why there are two versions of the luna token
In the wake of Terra’s implosion, Do Kwon came up with a proposal called Terra Ecosystem Revival Plan 2 on Terra’s developer forum.
He proposed a plan to create a new blockchain with a fork and then distribute new tokens among the community members based on how many UST and LUNA tokens they held. The majority of validators – the guardians of the network who approve transactions in the network and possess governance rights – voted to approve the proposal.
The new Terra blockchain (Terra 2) launched on May 28, 2022. In parallel, the old blockchain – often referred to as “Terra Classic” – remained live but with little to no activity and no plans for development on it.
After the launch, the new native token of the new network inherited the LUNA name.
The old blockchain continued to operate, and its token was rebranded to luna classic (LUNC).
What is luna classic (LUNC)?
Luna classic (LUNC) was originally created to be the first Terra blockchain’s native token under the name LUNA, launched in 2018.
Its role was to serve as a twin token to absorb any price deviation of the blockchain’s algorithmic stablecoin, terraUSD (UST). UST was supposed to keep its price pegged to the U.S. dollar by creating (minting) and (destroying) burning UST tokens to balance the stablecoin’s supply and demand at a $1 price peg. When UST lost its dollar peg and collapsed in May 2022, the token fell into a hyperinflationary spiral because the algorithm that was intended to back up UST created trillions of tokens, diminishing its value by almost 100%.
As a result, the token that was worth $119 in early April of 2022 fell below one cent by the end of May 2022.
What is luna (LUNA)?
May 28 marked the official launch of the new Terra blockchain. On the same day, some previous UST and LUNC holders received their new LUNA tokens in the first round of token distribution called an airdrop.
There are some key differences between the new luna token and the old one:
- There will be a finite supply of luna tokens, maximized at 1 billion coins in circulation.
- Luna does not have a stablecoin pair at the time of the launch.
Are luna and luna classic risky?
Investing in either luna classic (LUNC) or luna (LUNA) is highly risky at this point. It's like purchasing a house burned down to ashes or putting money upfront for plans that only exist on paper, respectively.
The future of the old Terra blockchain – including its LUNC and UST tokens – is uncertain, with little incentive to use and build any project on top of it.
The challenge for the new blockchain is how many of the numerous protocols and development teams that were building on old Terra will trust and stick around to develop applications.
The activity and use cases on the new blockchain will ultimately determine how much luna is worth and if it will succeed.