To the Moon? What the Terra Luna Story Means for Crypto

Last month marked one of the most devastating crashes in cryptocurrency history. Terra (LUNA), the native token of the Terra ecosystem, plummeted in price from over $100 per coin down to several zeros after the decimal in just a few days. The ripple effect of this crash was felt throughout the whole cryptocurrency market, dragging the prices of Bitcoin (BTC) and altcoins down with it.

The cause of the crash is generally accepted to be the massive $285 million dump of UST, the Terra network’s algorithmic stablecoin. UST was meant to be pegged to the dollar but fell below $1, and the minting of new coins and release into supply massively diluted its value. Other efforts to stabilise the crash, such as Terra liquidating its BTC holdings, or many exchanges delisting Luna, only accelerated the downward spiral.

Do Kwon, the outspoken and sometimes abrasive founder of the Terraform Labs project, also attracted criticism from the community for not appearing to take the crisis seriously or address investor concerns. In South Korea, where many Terra investors and DeFi projects were based, there was a huge public outcry and calls for legal action, as well.

By mid-May, the crypto community had all but declared Terra dead, but the project has a new lease of life and a bold rescue plan. 

Luna 2: Redemption

Do Kwon rallied supporters, investors, and developers to come up with a solution: a hard fork of the Terra chain with compensation for the UST and LUNA holders who were unable or unwilling to sell their holdings during the crash and the distribution of 1 billion tokens to previous UST/LUNA holders. The new blockchain is now live and is called Terra 2.

The reliance on the UST stablecoin was abandoned. Instead, the focus is on the new Luna 2 token, also called LUNA, on the ticker. The old Luna token, trading at $0.0002, has been rebranded as Luna Classic (LUNC). LUNC still has its hardcore supporters who opposed the fork and hold on to their original tokens. Decentralisation die-hards pointed out that Do Kwon’s top-down plan to reconstitute the blockchain went against the ideals of cryptocurrency.

So far, the impact of these changes appears to be positive for Terra 2.0. The newly minted Luna tokens rallied and briefly reached around $30 before settling down and trading at around $7 at the time of writing. It’s a far cry from the all-time high of the original LUNA but a good sign of health for the project’s recovery in these early days.

Effect on the crypto industry

The Terra Luna fiasco has decreased community trust in the effectiveness of purely algorithmic stablecoins, as UST proved to be far from stable. The affair has prompted several national governments to step in to regulate stablecoins or cryptocurrency in general.

The Chinese government highlighted the incident as a justification for its institutional ban on cryptocurrency trading and called for the need for greater regulation of stablecoins. The UK Treasury also released a paper proposing that the Financial Market Infrastructure Special Administration Regime (FMI SAR) serve as an overseeing entity over digital settlement asset (DSA) firms, including issuers of stablecoins or digital wallets. South Korea, the country where Terraform Labs is based (and where the company deregistered just days before the UST collapse), announced that it would launch a new Digital Asset Committee this month to regulate cryptocurrencies.

Is LUNA a good investment today?

The new LUNA token on the Terra 2 blockchain serves as the basis for DeFi apps and smart contracts, and the cryptocurrency’s price prospects will depend on these projects’ success and adoption. LUNA is no longer reliant on an algorithmic stablecoin, the major vulnerability that caused the initial crash is removed, but it will have to prove itself in market competition against the many other altcoin projects that power dApps, such as Ethereum (ETH), Solana (SOL), Polkadot (DOT) and many others. Of course, diversification strategies suggest that one should not invest in just one crypto project, so Luna could be an interesting part of a wider portfolio.

Regardless of whether you invest in Luna or choose other cryptos, StormGain remains the best place to trade, exchange and store all the top cryptocurrencies. The StormGain all-in-one platform offers 50+ digital assets, including altcoins, indices and tokenised stocks and commodities, to make a strong investment portfolio in both rising and falling markets. All this in an easy-to-use web interface or mobile app with powerful analytic tools that make StormGain the platform of choice for beginners and experts alike. Getting started in crypto trading? Register in just a few seconds and try the demo account to see what StormGain can do for you!