Summary: Join us as we explore the infamous blockchain Terra Money to better understand it's technology stack, if it's ecosystem has managed to survive and what the new tokenomics of LUNA are!
eToro USA LLC: Investments are subject to market risk. Including the possible loss of principal.
Terra History
Terra is a blockchain protocol and payment platform that was created in 2018 by Terraform Labs, co-founded by Do Kwon and Daniel Shin.
Terra Website
Daniel Shin is a successful serial entrepreneur who previously founded TMON, South Korea's leading e-commerce platform. Do Kwon, the other co-founder, was an experienced blockchain engineer with a background from Stanford and Microsoft.
Terra Money was originally known for its algorithmic stablecoins, with the most well-known being TerraUSD (UST) and the associated Luna reserve asset cryptocurrency.
Terra leveraged these fiat-pegged stablecoins to power its payment system while there were several Dapps built on top of it such as Anchor, Mirror, and Pylon, and many otheres.
The Terra blockchain was initially designed to be an algorithm stablecoin based blockchain while platform's native token, Luna, was supposed to stabilise the value of the TerraUSD (UST) stablecoin.
Terraform Labs, a Singapore-based company, managed to raise over $200 million in funding to try to achieve this vision from investors such as Binance, Galaxy Digital, and Pantera Capital.
The Terra blockchain was one of the most successful blockchains in 2021. It's market cap reached an all-time high of over $50 billion in 2021 but unfortunately, it's value collapsed in May 2022 when the UST stablecoin lost its peg to the US dollar.
The collapse of Terra had a significant impact on the cryptocurrency market as the price of Luna plummeted from over $100 to less than $0.01 in a matter of days.
Do Kwon is currently facing legal challanges from multiple jurisdictions including South Korea, Singapore, and the United State.
Do has denied any wrongdoing and has said that he is committed to rebuilding the Terra blockchain. At the time of writing, it is unclear whether Kwon will be able to maintain that promise.
What is Terra?
Terra was a decentralised blockchain that had a goal to create a stable digital currency system.
Originally, Terra operated with a dual token system which consisted of LUNA (governance token) and a collection of fiat-pegged stablecoins that were pegged to various national currencies such as UST.
The blockchain infrastructure was and is based on the Cosmos SDK, a blockchain framework that provides a customizable framework for developing decentralised blockchains.
Terra employs the Cosmos based Tendermint consensus mechanism which is a Byzantine Fault Tolerant (BFT) consensus protocol that provides fast finality and high throughput.
How Does Terra work?
The Terra digital ecosystem which once had a value of over $50 billion experienced a collapse in May 2022, marking the largest token failure in cryptocurrency history.
The value of Terra's algorithmic stablecoin UST and its twin token LUNA plummeted nearly to zero within a week, prompting a halt of the Terra blockchain.
The collapse resulted in significant losses for investors and posed economic risks for developers working on Terra-related projects.
Despite these setbacks, a portion of the community led by Do Kwon chose to stay and work on reviving the project.
This led to the creation of two parallel operating Terra blockchains: the original Terra network with its token renamed to Luna Classic (LUNC), and a newly launched blockchain with a native token called Luna (LUNA).
This was the result of Kwon's Terra Ecosystem Revival Plan 2 proposal which called for a new blockchain to be created via a fork, and new tokens to be distributed among community members based on previous holdings.
The new Luna token which was introduced with the launch of the new Terra blockchain doesn't have a stablecoin pair and has a capped supply of 1 billion coins.
Terra Coin (LUNA)
The new LUNA token has a number of purposes, including:
Staking: LUNA tokens can be staked to earn rewards. Governance: LUNA holders can vote on proposals that affect the Terra blockchain. Payments: LUNA tokens can be used to pay for fees on Terra. Liquidity: LUNA tokens can be used to provide liquidity on DeFi DEXs & dApps.
The new LUNA token is designed to be a more stable and reliable token than the old LUNA token. The vesting schedule is designed to prevent a large sell-off of LUNA tokens, and the community pool will be used to fund development and marketing initiatives.
Terra Tokenomics (LUNA)
The new LUNA token which was introduced as part of the Terra blockchain's revival plan has a total supply of 1 billion tokens.
The distribution of these tokens is structured to foster the ecosystem's recovery following the UST collapse, with specific allocations targeting both pre-attack and post-attack LUNA and UST holders.
The distribution plan allocates 30% of the total supply to a community pool, which will be used to fund future development and marketing initiatives.
A substantial 35% is awarded to pre-attack LUNC holders, while 10% is designated for pre-attack UST holders.
Those who held LUNC and UST tokens after the collapse, termed post-attack holders, are allotted 10% and 15% of the total supply, respectively.
These tokens are vested over varying time periods to discourage mass sell-offs and promote long-term holding of LUNA tokens.
For the community pool and pre-attack LUNC holders, the vesting period spans two years.
Pre-attack UST holders have a vesting period of one year. Conversely, post-attack holders of LUNC and UST have shorter vesting periods of six months and three months respectively.
eToro USA LLC: Investments are subject to market risk. Including the possible loss of principal.
Author
Mike Harry
Mike is a passionate crypto enthusiast who bought his first Bitcoin in 2016. With a natural curiosity and a love for learning and tinkering, Mike is always trying out new DeFi applications. Mike excels at breaking down difficult concepts into easy-to-read guides for beginners.
