Terra 2.0 Is Alive and Kicking, but Will It Survive and Thrive?
Earlier this month, the Terra blockchain token LUNA collapsed in value while trying to stabilize its stablecoin TerraUSD (UST), causing the price of LUNA to plummet by more than 99%, and wiping more than $50 billion off its market value in the process. Recently, in a controversial move Terra announced a new version, with the launch on May 28 of an independent blockchain parallel to the original blockchain. The original Terra network will be renamed Terra Classic and the old token will be called LUNA Classic (LUNC). Investors that held UST or LUNA before the crash, “as well as those who purchased either asset following the depeg, were airdropped the new token with varying levels of distribution”, confirmed CoinDesk.
Normally a hard fork means a new blockchain will share history with the original chain, but Terra has made it clear that Terra 2.0 will not share history with Terra Classic. Terra’s new blockchain doesn’t replace it but runs in parallel. The new token will be called LUNA ($LUNA, or $LUNA2 as some exchanges refer to it). And crucially the so-called ‘Terra ecosystem revival plan 2’ revival does not include the UST stablecoin. Which means much of the ecosystem built on Terra V1 won’t be compatible with Terra V2.
The good news is that the new LUNA attracted more than $850 million in trading volume over the past 24 hours, as of time of writing on May 31 as it was listed on Binance. LUNA V2 has recovered its price to trade at $8.85, with a supply of 210 million, and a market cap of $1.8 billion. However, the chances of LUNA returning to the high price of $118 in April in the short term are practically nil. The question remains whether Terra 2.0 can deliver a turnaround for its community? At the same time there are plenty of existing investors who, despite the vote backing the new LUNA blockchain, believe the new blockchain is not the solution. And the new Terra plan, while passed by its network validators, had precious little backing from community members.
Certainly, it seems difficult to believe that Terra, a company that has experienced a dramatic slump in such a short space of time, was able to turn things around so quickly. Even with the current launch of LUNA, will the users who lost in the previous slump support it? Even among those users who didn’t suffer losses, would anyone still invest in it in the longer term? Clearly answers to these questions may require the test of the market. But it is undeniable that the co-founder and CEO of Terra, Do Kwon, who proposed the Terra 2.0 plan, believes in its viability with a series of tweets marking the major crypto exchanges supporting the launch.
Terra’s debacle shocked many in the wider crypto industry due to its scale and speed. As the ecosystem collapsed, the value of the LUNA and UST tokens plummeted, quickly evaporating around $50 billion in value. The LUNA crash shows that even the top ten cryptocurrencies, with prominent VC backing, have the potential to collapse in a ‘death spiral’. However, just as importantly it is a stark reminder of some basic tenets of crypto investing:
• Invest only what you can afford to lose
The golden rule is never to invest more than you can afford, and while investing in cryptocurrencies can give you the opportunity to make significant returns, you also need to be prepared for a crash. Make sure that crypto investments are only a small part of your overall portfolio.
• Never trust projects that ‘guarantee’ profits
There are all kinds of incredible temptations. For example, some decentralized exchanges offer more than 100% APY. In addition, many DeFi protocols provide higher interest rates than traditional savings accounts. So be extra careful when you come across projects that promise very high returns.
• Don’t invest all your funds
The worst thing that can happen when investing in cryptocurrencies is losing all your funds. And your investment account won’t be protected by FDIC insurance in the US for example, so if the project crashes, you’re on your own. So, to reiterate make sure not to invest all your funds in cryptocurrencies.
When Terra 2.0 became Terra’s new blockchain, many investors were understandably wary of trusting the company again. Of course, it’s also possible that the Terra team can learn from the whole experience and make Terra stronger through continuous adjustment and learning. While you can’t say for sure if Terra 2.0 will turn it around, time and market forces, will help deliver the right judgment. Will a new blockchain and the backing of some well-known companies be enough to raise Terra from the ashes? We’ll have to wait and see. As always, the advice is that investors should do their research and only invest money they can afford to lose, especially in the current bear market for cryptocurrencies accelerated by the Terra collapse.