The Terraform Labs stablecoin UST and its accompanying LUNA cryptocurrency token collapsed in May, sending shockwaves throughout the crypto markets that they have yet to recover from.But in an attempt to restore the ecosystem, Terra relaunched the LUNA token with a 2.0 version at the end of May.
The LUNA 2.0 token launched on 28 May and immediately plunged in value by 74%.It then fell by another 60%, but it has stabilised in the past week as the market attempts to evaluate fair value in the midst of the controversy surrounding the collapse.
In this article we look at what happened to LUNA, the launch of the new token and analyst views on LUNA 2.0 price prediction for 2022 and beyond.
Terra attempts to rebuild with LUNA 2.0
The Terra project was founded in 2018 by former Apple ( AAPL ) and Microsoft ( MSFT ) software engineers: Do Kwon, who was previously founder and CEO of decentralised wireless mesh networking startup Anyfi, and Daniel Shin, who co-founded South Korean e-commerce platform Ticket Monster and startup incubator Fast Track Asia.
The project ironically aimed to drive the adoption of blockchain and cryptocurrency technology by focusing on price stability and user experience.
Terra focused on creating algorithmic stablecoins such as TerraUSD (UST), which maintained its peg to the US dollar through a swapping mechanism with the LUNA token that enabled users to redeem 1 UST for $1 worth of LUNA tokens.
UST depegged from the US dollar over a few days from 9 May, collapsing by 12 May and causing hyperinflation as sales of UST resulted in the minting of billions of LUNA tokens.
On 28 May, Terra relaunched the LUNA token without UST as a hard fork , or spinoff, of the blockchain.According to the project’s migration documentation , the “original Terra has rebranded to Terra Classic and a new chain is created with the existing Terra name… The original Cosmos chain will still run, with market swaps (mint/burn function) disabled.”
“The new chain is also a Cosmos chain, but will not have the treasury, oracle, or market modules of the original chain.The new chain’s native mining token will be Luna.There will be no Terra stablecoins (UST, KRT, EUT, etc.) on the new chain.”
All of the Luna coins that were previously on exchanges were renamed Luna Classic (LUNC) and all Terra stablecoins were rebranded as Terra Classic stablecoins.
TerraUSD (UST) became TerraClassicUSD (USTC) and TerraKRW (KRT) became TerraClassicKRW (KRTC).
The initial maximum supply of LUNA coins on the new Terra chain is 1 billion, of which 124.6 million were in circulation at the time of writing on 16 June.“The mint module will release new coins every block as staking rewards at a default rate of around 7% [per annum],” the documentation said.
LUNA 2.0 tokens were airdropped to LUNA token holders starting on 27 May.The new LUNA coin opened at a price of $18.98 on 28 May but immediately plummeted in value to end the day at $4.94.
Although the price moved back up to $11.97 on 30 May, it fell again and by 8 June reached an intraday low of $1.96.The coin has since been trading around $2-3.
How do analysts view LUNA 2.0?
Mads Eberhardt, cryptocurrency analyst at Dutch bank Saxo, commented following the LUNA 2.0 launch that Terra “is somewhat ignoring that it has caused a meltdown worth billions”.
The UST collapse wiped out a total market capitalisation of $58bn, of which UST accounted for $18bn and LUNA $40bn.
“At some point, one should acknowledge one’s defeat and let a project die out.Terra should have been such a project,” the analyst said in a note published on 30 May.
“In our view, Terra has already caused enough harm to individuals and the crypto market as a whole.It genuinely seems the people behind Terra believe that they can always give it a new shot, in case their first effort did not turn out well, thus neglecting that their flawed design has already caused a meltdown worth billions.
“The case of Terra does not put the crypto market in a good light nor does the Terra 2.0 narrative of ‘let us just try again’.The crypto market should focus on projects that create value to become something else than a speculative asset class.”
Anders Helseth, senior analyst at cryptocurrency research firm Arcane, pointed out that Terra’s stablecoin UST “worked as the perfect exit liquidity in what can be described as a prolonged pump and dump scheme”.
“A combination of LUNA supply control, the psychology of the dollar, and guaranteeing high yields secured with their own pre-mined tokens created sustained exit liquidity,” he said in a note.
As the Terra protocol had no built-in inflation mechanism, early token holders had two ways to profit – selling tokens to new token buyers or holding the tokens until they appreciated in theoretical paper value.
“No block reward and a highly concentrated LUNA supply gave all power to the early holders,” Helseth wrote.
“Terra blockchain data shows that wallets connected to Terraform Labs and the large early LUNA holders have made tremendous profits… sets of John Doe wallets interacting closely in clusters have massive net outflows from the Terra ecosystem to bridges and centralised exchanges.
“The common denominator among the clusters is that one or more wallets in the cluster received significant transfers from Terraform Labs wallets or the largest John Doe wallets as of October 3rd, 2020.
“From October 2020 to May 5th, 2022, the clusters have net outflows of $6 billion to exchanges and through bridges (flow value calculated by using market prices at the time of transfer).In contrast, all the other hundreds of thousands of wallets have a net inflow of $6.5 billion.
“By pumping the LUNA token, the burn/mint mechanism, and creating a sustained demand for the UST token through Anchor, the perfect exit liquidity for large LUNA bags was created.
And the UST exit gates were used at scale for a set of very early LUNA holders.At best, the profits can be described as collateral winnings in a failed bootstrapping attempt.”
There were claims that Terra’s co-founder Do Kwon cashed out $2.7bn in the months ahead of the UST crash, which he refuted in a Twitter thread .
Crypto analyst John Hargrave at Quantum Economics noted that there were “yellow flags that should have made people cautious about investing in terra, and the red flags that we hope will keep investors from re-investing in terra when it relaunches.”
The yellow flags included the fact that UST was an algorithmic stablecoin and that Terra is highly centralised around Do Kwon.
The red flags included the fact that Terra offered 19.5% in annual Interest through the Anchor protocol, paid from its reserves; and that Anchor held 75% of the Terra supply – unlike Ethereum, for example, which has a rich ecosystem of decentralised applications (dApps) .
Do Kwon raised further red flags with instant plans to relaunch LUNA as a standalone token without the stablecoin and by changing the proposal after voting began.That the vote still passed was another red flag, according to Hargrave.
“You’d have to be a LUNAtic to re-invest.As value investors, ask yourself: where’s the value? Is terra, the technology, really providing additional value to the world?” Hargrave wrote.
“Creating a new token out of thin air, getting rid of the stablecoin, and pretending as if nothing happened: how is that creating value? This is crypto, so anything could happen.”
LUNA 2.0 price prediction for 2022 and beyond
Technical analysis compiled by CoinCodex showed that sentiment was bearish on LUNA at the time of writing.The coin was trading below its 3, 5 and 10-day moving averages , indicating a bearish trend.
A relative strength index (RSI) of 23, however, was indicating that an asset is undervalued and a trend reversal may occur.
According to CoinCodex’s LUNA 2.0 coin price prediction, the value could plunge by 57.26% to reach $0.999756 by 21 June.
The LUNA 2.0 crypto price prediction from Wallet Investor was bullish, however, with the website’s algorithm predicting that the price could rise to $58.549 by the end of 2022 and $105.175 by the end of 2023.
Wallet Investor’s LUNA 2.0 price prediction for 2025 showed the price climbing to $198.59 and reaching $233.94 in five years’ time.
The LUNA 2.0 price prediction from Telegaon had it averaging $61.72 in 2025 and $185.38 in 2030, up from $21.43 in 2022.
DigitalCoin was less bullish in its Terra 2.0 price prediction, estimating that the coin could average $3.35 in 2023, up from $3.03 in 2022, and average $4.58 in 2025.DigitalCoin’s LUNA 2.0 price prediction for 2030 showed the price rising to an average of $10.73.
Price Prediction’s LUNA 2.0 price prediction for 2022 suggested the coin could trade at $3.23, rising to $9.72 in 2025 and $62.94 by 2030.
When researching any LUNA 2.0 price prediction it’s important to consider the market uncertainty created by the collapse of the first version of the coin.
Keep in mind that cryptocurrency markets remain extremely volatile, making it difficult to accurately predict what a coin’s price will be in a few hours, and even harder to give long-term estimates.As such, analysts and algorithm-based forecasters can and do get their predictions wrong.
If you are considering investing in cryptocurrency tokens, we recommend that you always do your own research.Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment or trading decisions.
Keep in mind that past performance is no guarantee of future returns.And never invest money that you cannot afford to lose.
FAQs
Cryptocurrencies are high-risk assets, especially coins like LUNA , which have a history of instability.Only you can decide whether LUNA 2.0 is an appropriate investment for your portfolio, depending on your risk tolerance, portfolio size and goals.Keep in mind that past performance is no guarantee of future returns.And never invest money that you cannot afford to lose.
Forecast sites differ in their view of the LUNA 2.0 token price in the future, with some projecting the price will fall, while others predict different levels of gains.That difference in predictions reflects the importance of doing your own research to take an informed view about potential future price moves.
Note that analysts’ and algorithm-based predictions can be wrong.
You should do your own research into the LUNA 2.0 token and how it differs from the original token to decide whether the coin is a good fit for your investment portfolio depending on your risk tolerance, portfolio size and goals.Keep in mind that past performance is no guarantee of future returns.
And never invest money that you cannot afford to lose..
