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One of the biggest crypto storylines of the year thus far is the demise and reincarnation of the Terra ecosystem. Once among the largest blockchain projects in the world, Terra is now looking to claw its way back on top. It’s doing this by bifurcating the original Terra network into Terra Classic (LUNC-USD) and Terra 2.0 (LUNA-USD). Will this prove enough to buoy the ecosystem?
Terra is a layer-1 blockchain network presenting users with an alternative to the industry-leading Ethereum (ETH-USD) chain. Users operate across a range of decentralized applications (dapps) for whatever they wish; most popularly, users looked to Terra for DeFi protocols like Anchor (ANC-USD) and Mirror (MIR-USD).
The network is the product of Do Kwon, who founded the network and created the company Terraform Labs to help develop it. Kwon and Terraform Labs had steered the network since its launch in 2019. However, it also employs a governance model, allowing users to decide the actions undertaken by Terraform Labs to grow the network.
Another key player in the Terra ecosystem is the Luna Foundation Guard (LFG). Founded earlier in the year, the LFG is a group of Terraform Labs members aiming to keep TerraUSD, which now trades as TerraClassicUSD (USTC-USD), pegged to $1. The LFG sprang up in the aftermath of TerraUSD’s price de-pegging at the beginning of the year. It bought billions of dollars in Bitcoin (BTC-USD), as well as other assets like Avalanche (AVAX-USD).
Terra’s Sudden and Rapid Downfall
The network did have a good thing going, building notoriety as an Ethereum alternative. This all fell apart a few weeks ago, though. TerraUSD lost its $1 peg once again, and being such a major part of the ecosystem, as well as an anchor to LUNA’s total supply, this event threw the whole network into a downward spiral. LUNA and TerraUSD prices continued to plummet until they both became essentially worthless.
Interestingly enough, the LFG proved ineffective at stopping the decline of the project. It used nearly 80,000 BTC to try and halt the stablecoin’s price slippage to no effect. The event caused massive losses for investors, too. In just three days, a $1 million investment in the LUNA coin was worth less than $200. Terra developers went so far as to halt the chain entirely, barring any users from moving assets on or off the Terra network.
As this occurred, Do Kwon and the rest of the Terraform Labs team rushed to think of a solution. They settled on the Terra Revival Plan to give the LUNA crypto a second shot at life.
Developers Create a Second Network to Save Terra Ecosystem
The solution that investors agreed upon saw Terra raise a second blockchain network. Dubbed Terra 2.0, the chain brought an entirely new LUNA coin to market. Meanwhile, the original Terra chain rebranded to Terra Classic, and its LUNA coin rebranded to LUNC.
Terraform Labs is not giving up on the original chain. But, most of the hype surrounding the revival plan falls on Terra 2.0. The network launched on May 28 (after a delay), complete with a LUNA airdrop that rewarded any investors holding assets from the original network.
This all explains how investors got to this point. Where things go from here is in the hands of Terraform Labs. There are trust issues the team must overcome if it hopes to give Terra 2.0 any longevity. Meanwhile, Do Kwon and Terraform Labs are being dragged down by several shady stories.
Word that the company’s Korea branch was dissolved to allegedly evade taxes and that it moved money through a shell company is causing suspicion over what the company had known beforehand. It also recently came to light that Do Kwon was behind another failed stablecoin project, something he did not previously disclose to Terra users.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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