Will Terra/ Luna Recover From The Crash?
The fall of Terra LUNA drove the entire crypto market down. Most crypto assets sustained significant losses following Terra LUNA’s collapse.
TERRA LUNA owners woke up to a harsh surprise last week when the token’s value plummeted overnight, leaving them with a fraction of their original investment. What happened to Luna, then?
The Current State of the Luna Community
The Terra community is not enthusiastic about Do Kwon’s intention to resurrect Luna. Although most Terraform Forum members are publicly denouncing the idea, the CEO of Terraform Labs has updated his recovery plan status to “final” a day after drafting it on the site.
The Terra community points to two main issues: the new token LUNA Core distribution does not consider the circulating supply available at the time of purchase. Also, it ignores the massive losses suffered by TerraUSD (UST) holders; the algorithmic stablecoin allegedly pegged to the US dollar collapsed last week by more than 90% to its current value, just below $0.1.
What’s The Revival Plan of Do Kwon, CEO of Terraform Labs
Terraform Labs CEO Do Kwon is pushing forward with his “Terra Ecosystem Revival Plan 2.
Kwon proposed a joint plan of action with the Terra community following the collapse of the Terra stablecoin peg to US dollars last week and the subsequent demise of its native token LUNA, which plunged from $87.68 to the current $0.0002 levels.
Do Kwon’s remark on the Terra Agora forum details the recovery plan’s short-term schedule. Terraform Labs held a governance vote on Wednesday, May 18th, on whether to adopt a hard fork for Terra, similar to the well-known DAO hack that split the Ethereum network into two coins, Ethereum (ETH) and Ethereum Classic (ETHC), in 2016. (ETC).
See also: What is a Market Cycle?
After the fork occurs, the current worthless LUNA tokens will be converted to Luna Classic (LUNC). LUNC holders, stakers, and developers will be rewarded with brand new LUNA tokens, with a limit of 1 billion. The new LUNA network is programmed to be launched on May 27th if everything goes according to Terraform Labs CEO plans.
The Luna Foundation Guard Council advocated forking LUNA to a new chain, utilizing a snapshot from before the attack on the blockchain, as part of Do Kwon’s proposal. Binance CEO Changpeng Zhao and cryptocurrency supporters have criticized Do Kwon’s suggestion to fork Terra’s LUNA into a new chain. The Luna Foundation Guard has spent $3 billion to keep the peg of TerraUSD stable, but UST has not recovered.
How does Luna/UST work?
Terra’s network’s native tokens, Luna and TerraUSD (UST), are both blockchain-based projects developed by Terra Labs in South Korea.
“The Terra blockchain is built on Cosmos SDK, a platform that allows developers to build blockchain projects and decentralized applications on top of Terra for various use cases.”
“There are currently over 100 domestically produced projects in the Terra ecosystem.” Non-fungible token (NFT) collections, decentralized finance (DeFi) platforms and Web 3 apps are among them.”
Terra’s goal is to become a peer-to-peer electronic cash system. It intends to accomplish so by employing “stablecoins,” which are cryptocurrencies tied to a real-world currency.
The UST is tied to the US dollar, implying that one UST should always be worth about one dollar. Here’s where Luna comes in. “Rather than relying on a reserve of assets to keep its value stable, UST is an algorithmically stabilized coin.”
This entails utilizing a smart contract-based algorithm to maintain the price of UST at $1 by burning (permanently destroying) Luna tokens in order to mint (produce) new UST tokens.”
Users in the Terra ecosystem are supposed to be able to trade the Luna token for UST at a guaranteed price of $1, regardless of the current market price of either token.
What caused Luna’s demise?
Reports have stated that, due to concerns over the Federal Reserve’s imminent interest-rate hike, Terra’s peg to the dollar was lost, and Luna plummeted.
As the value of UST plummeted, the algorithm responded by producing additional Luna coins in an attempt to remedy the situation. Luna’s worth, on the other hand, was plummeting.
Binance momentarily blocked withdrawals on Luna on Wednesday, and the Terra blockchain was temporarily halted on Thursday night.
Terra stated that the decision was made to “avoid governance attacks.”
The coin’s demise comes amid a broader cryptocurrency decline, with numerous cryptocurrencies losing considerable value in the past week, including Bitcoin, which fell below $30,000.
With various economies faced with global inflation, investors appear to be moving away from bitcoin and into less hazardous options.
The American crypto exchange giant Coinbase had its stock plunged 15.6 percent overnight on Tuesday last week after the company reported financial losses of $430 million (£348 million), which was significantly more than experts expected.
Coinbase has mentioned a “pattern of lower crypto asset values and volatility that began in late 2021” but quickly added that these conditions are not expected to last.
This remark has prompted speculation over whether the market is entering a predicted cooling spell — nicknamed “crypto winter” previously — or a more persistent chill, possibly a “crypto ice age.”
“The concern today for crypto asset investors is when the drop will halt,” said Simon Peters, cryptocurrency market analyst at eToro.
“The market is caught up in the greater adversity of financial markets, which are trying to determine where comfortable levels are in the aftermath of interest rate hikes intended to cool skyrocketing inflation across the Western world.”