Terra, a once-billion-dollar digital asset ecosystem, collapsed in May 2022, perhaps becoming the greatest token crash in crypto history. Within the span of one week, the price of Terra’s UST, which was the world’s largest algorithmic stablecoin, and Terra’s native token LUNA, which was meant to maintain UST’s price, plummeted virtually to zero. Prior to the crash, UST and LUNA were both in the top ten cryptocurrencies.
The crash caused mass hysteria, leading to many investors losing their life savings. Developers on the Terra network weren’t spared either.
Do Kwon, founder of Terra, proposed Terra Ecosystem Revival Plan 2 on Terra’s development forum in the aftermath of the system’s demise. He offered a strategy to fork a new blockchain and then issue additional tokens to community members based on how many UST and LUNA tokens they already had. The idea was approved by the majority of validators, who are the network’s guardians, who validate transactions and have governance rights.
On May 28, 2022, the new Terra blockchain went live. In the meantime, the previous blockchain – dubbed “Terra Classic” – remained operational, but with little to no activity and no prospects for development.
This led to the formation of two Terra networks. First is the original blockchain, the native token for which has been renamed Luna Classic (LUNC), along with the UST stablecoin. And the other is the new blockchain with a new native token called Luna (LUNA).
The renaming and relaunching of the networks have caused some, much understandable, confusion. In that regard, let’s take a look at how these tokens are different, and what has changed for Terra.
What is Luna Classic (LUNC)?
As mentioned above, Luna Classic (LUNC) was the original Luna token that was launched in 2018.
Its purpose was to act as a twin token to absorb any price fluctuations in terraUSD (UST), the blockchain’s algorithmic stablecoin. UST was designed to maintain its price tied to the US dollar by issuing (minting) and burning UST tokens to keep supply and demand at a $1 price peg balanced. When UST lost its dollar peg and crashed in May 2022, the token entered a hyperinflationary spiral since the algorithm that was supposed to back it up generated trillions of tokens, reducing the token’s value by nearly 100%.
As a result, by the end of May 2022, the original Luna, now named Luna Classic (LUNC) which was worth $119 in early April 2022, had fallen below one cent.
What is Luna (LUNA) and how is it different?
On May 28th of 2022, Terra Ecosystem Revival Plan 2 was approved, and with it, Terra’s old network was forked, and a new blockchain was created. This new network inherited the name of the older token, Luna (LUNA), as the older one is now called Luna Classic.
In the initial wave of token distribution, known as an airdrop, some prior UST and LUNC holders got their new tokens on launch day itself.
Many well-known cryptocurrency exchanges backed the launch and added the new coin to their platforms, albeit some were wary of the project, fearing another debacle like the first. As traders gambled on the coin’s future utility, trading began with huge price fluctuations in both directions.
The new Luna token differs from the previous one in a number of ways. To begin, there will be a limited number of luna tokens, with a maximum circulation of 1 billion coins. Second, at the time of the introduction, Luna does not have a stablecoin pair, unlike the previous project’s UST stablecoin.
Will the new blockchain succeed?
The old Terra blockchain, with its LUNC and UST currencies, is surrounded by uncertainty, with no motivation to utilize it or build any project on it.
The new blockchain’s challenge is determining how many of the multiple protocols and development teams that were built the old Terra would trust it and continue to create apps. Its activities and use cases will eventually define how much luna is worth and if it will succeed.
At press time LUNC was trading at $0.00007646 down by over 100% from its all-time high of $119.18 which it attained on April 5th, 2022.
On the other hand, LUNA was trading at $3.06, down by 83.8% from its all-time high of $18.87, which it attained on launch day, May 28, 2022.
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