MUMBAI (BLOOMBERG, REUTERS) – A proposal by the founder of the troubled Terra ecosystem to salvage the project was approved on Wednesday (May 25), averting a total collapse of one of the most-watched experiments in decentralised finance.
Under the approved plan, developers will create a new Terra blockchain with a revived Luna token.The original blockchain will be renamed Terra Classic, while the original Luna token will be called Luna Classic, with the ticker LUNC.
The new Luna tokens will be distributed to previous holders of Luna and TerraUSD (UST) in a so-called “air drop”, relying on a snapshot taken of the old Terra network to verify participants, said Mr Do Kwon, chief executive of Singapore-based Terraform Labs, the unlicensed company behind the Terra blockchain.
In a tweet, Terra said that it would work with crypto exchanges Binance and Bybit to distribute the new Luna.
The new Terra blockchain will start running a coin under the existing Luna name and ticker, and will not include the UST stablecoin.
All decentralised applications and assets built on the old Terra chain will need to migrate to the new one, Terraform Labs said, with Luna and UST holders advised to transfer their tokens to native Terra wallets rather than holding them on exchanges.
Terra’s unravelling, which started earlier this month with the implosion of the algorithmic stablecoin that Mr Kwon had touted relentlessly, marked one of the biggest busts in the crypto industry’s history.While the outcome of Wednesday’s vote represents a victory of sorts for Mr Kwon and his supporters, doubts persist about whether Terra can ultimately be revived.
The process means Terraform Labs is effectively abandoning UST, which from now on will trade only on the Terra Classic blockchain.Designed to maintain a one-to-one peg to the United States dollar, it traded at around 10 cents on Wednesday.
Mr Kwon, the crypto entrepreneur behind Terra, had proposed to split the blockchain in half, carrying out what is known in the industry as a “hard fork” of the network.His suggestion was later amended by Terraform Labs, the project’s main operator, to instead forge an entirely new Terra blockchain and leave the old network to be managed by users.
Doomed mechanism UST used a mix of algorithms and trader incentives to adjust its supply in relation to its sister token Luna and maintain its dollar peg.In theory, those mechanisms were supposed to guarantee that UST never deviated for long from its link.
As UST began to lose its peg in the days following May 7, TerraForm labs was forced to dramatically increase the supply of Luna coins to restore the link.That, in turn, caused the price of Luna to collapse – ultimately dooming the effort and wiping out some US$40 billion (S$55 billion) in total market value.
Luna rose about 12 per cent after the proposal passed.The token has lost almost all its value since the UST crash.
Mr Kwon’s proposal was met with criticism from many validators and investors, who sought restitution from the project’s leadership after watching the value of their holdings disintegrate.
A final tally of the votes on the proposal on Wednesday showed 65 per cent in favour and 21 per cent abstaining.Some 13 per cent of votes were “no with veto”, short of the 33.4 per cent needed to scuttle the proposal.
Terra also faced questions over how it used a US$3.2 billion reserve it had built up in Bitcoin and other crypto assets to support UST, while major investors including Delphi Digital and Galaxy Digital said they erred in blindly supporting the ecosystem.
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