Backed by several leading crypto exchanges (Binance, Huobi, etc), the TerraForm Lab is set to rebuild the Luna token following its crash on May 9th, 2022.
Luna 2.0 is the rebirth of the Terra Luna token. Describing his recovery plan, Do Kwon (CEO of TerraForm Lab) explained that the Terra chain will be hard forked into two chains: Luna classic (LUNC) the original blockchain tied to the stablecoin (UST), and Terra (LUNA) the new chain without a stablecoin.
Although this proposal was accepted with 65.5% vote in favor by validators and stakeholders and 91% vote against by Terra online community, the big question remains “will Luna 2.0 be any better?”
Also Read: Beginners guide to cryptocurrency.
What caused the Luna crash?
Terra (LUNA) and Terra USD (UST) were launched in 2018 by the TerraForm Lab.
Terra (LUNA) is the cryptocurrency running on the Terra blockchain while Terra USD (UST) is an algorithmic stablecoin maintaining the value of the cryptocurrency (LUNA).
Like other stablecoins, algorithmic stablecoins maintain a 1:1 ratio with a fiat currency to protect investors from crypto volatility. In the case of UST, the fiat currency is the US dollar.
In addition, algorithmic stablecoins are maintained by an on-chain algorithm that detects changes in supply and demand between the stablecoin and another cryptocurrency and moves to balance it.
In the case of UST and Terra Luna, the algorithm is a burn-mint structure where one coin is burned or minted to control the value of the other.
On May 7th 2022, the 1:1 ratio between UST and US dollar slipped with investors dumping UST. To control the value of UST, the Terra algorithm started minting its sister coin LUNA. Terra LUNA circulation rose from 350 million to 1.4 billion between May 7th and May 9th and stood around 7 trillion a week after.
When the supply of commodities spike, its price drops. With the increased supply of Terra LUNA, its price dropped 99.9% from $120 to $0.02 in 48hours.
To save the crypto, the options were either to burn LUNA or fork.
Also Read: 78 Cryptocurrency terms you should know.
LUNA Recovery Plan: LUNA Fork
To save the crypto, Do Kwon proposed to fork the blockchain. The idea is to split the Terra blockchain into two: Terra Classic (LUNC) the original blockchain running with the algorithmic stablecoin, and Terra (LUNA) the new chain without a stablecoin. The two blockchains are to co-exist.
When will LUNA 2.0 be released?
LUNA 2.0 will go live at 3:59 am (GMT+8) on May 27th, 2022.
LUNA 2.0 coin distribution
Holders of luna classic and USTC will be distributed the new LUNA token through an airdrop.
According to the coin distribution plan by the Terra project team:
1). Pre-attacked LUNA holders will have 35% of the airdrop.
2). Pre-attacked aUST holders will be given 10%.
3). Post-attacked LUNA holders will be allocated 10%.
4). Post-attacked UST holders will be allocated 15%.
5). Community pool: 10% for developers and 30% controlled by LUNA stakers.
Crypto exchanges behind LUNA 2.0
Binance, Huobi, Bitfinex, HitBTC, and FTX announced their support for LUNA 2.0 and the airdrop plan while Coinbase pulled out from the LUNA listing.
Emmanuella Elenbalu is the Content Manager at Coinsem. She is passionate about cryptocurrency, investment, and learning new things.