Terra

What is Terra (LUNA)?

Terra is an open-source, community-owned blockchain in the process of rebuilding an ecosystem that was once perhaps the most exciting in the industry.

Previously built around a stablecoin framework and a thriving decentralized finance (DeFi) ecosystem, Terra seemed poised to take on Ethereum in terms of activity and bustling development.

However, an attack that shook the entire industry in early May 2022 brought the entire blockchain to a shuddering halt. With the LUNA token in flames and the UST stablecoin flailing, the network was subject to a hard fork that gave rise to Terra.

What Happened to Terra Luna and UST?

One of the top reasons for Terra’s popularity was a decentralized application (dApp) called Anchor Protocol.

Anchor promised an incredible 20% interest on UST stablecoin deposits, which attracted funds from retail investors, lending companies, and yield-chasing hedge funds. It was so popular that up to 72% of the UST in circulation was deposited on the protocol.

Anchor took deposits and loaned the funds out to borrowers, just like banks do. However, it was unclear how Anchor could sustain such a high-interest rate, and many observers suggested it might have been a form of a Ponzi scheme.

Then, theories started to fly as an unusually large series of transactions led to a de-peg of UST’s relationship with the value of a dollar. This led to a “bank run” on the Anchor protocol.

Luna Foundation Guard (LFG) had previously accumulated $3.5 billion worth of Bitcoin to help back Terra’s algorithmic stablecoins. The organization had to sell a significant portion of this reserve at a loss to buy back and stabilize UST, but its efforts were in vain.

According to a third-party audit by JS Held, LFG spent around $2.8 billion in BTC and almost $50 million in stablecoins to defend the UST peg. Terraform Labs, the company run by Terra’s founder, had also spent a significant amount of its own capital to defend the peg. Whether this was a deliberate attack on Terra remains unproven, but Blackrock and Citadel Securities issued statements in the aftermath denying that they traded UST. According to Forbes, however, Blackrock had recently become the primary reserve manager for competing for stablecoin USDC’s cash reserves. Meanwhile, Citadel, which runs both a market maker and a hedge fund that trades US securities, was also already involved in crypto via an investment from crypto venture fund Paradigm. The firm has been fined on many occasions by regulators of multiple jurisdictions, including a $97 million fine and a 5-year ban from operating in China. Citadel founder and CEO Kenneth Griffin was the top donor to the US Republican party in 2022. He also appeared before Congress in 2021, and his testimony, according to MarketWatch, gave rise to the trending Twitter hashtag “#kengriffinlied.”

Who are the Founders of Terra?

Terra was founded in early 2018 under the banner of Terraform Labs by Do Kwon and Daniel Shin. Do Kwon was the CEO of Terraform Labs until the Terra collapse and was seen as the face of the project, although he often courted controversy on social media.

Terraform Labs also created the Luna Foundation Guard to add an asset reserve to help support its catalog of algorithmic stablecoins. LFG was funded by donations from Terraform Labs.

Before Terra, Daniel Shin co-founded and headed Ticket Monster, an e-commerce giant. He also co-founded Fast Track Asia, a popular startup incubator.

Following the collapse of Terra, Kwon deployed the revival plan titled “Terra Ecosystem Revival Plan 2,” which forked the ecosystem into two blockchains, Terra Classic and Terra.

On September 15, 2022, a court in South Korea issued an arrest warrant for Kwon, accusing him of violating local market laws. However, the courts dismissed a request for an arrest warrant against Shin was dismissed in early December 2022. According to South Korean prosecutors, Kwon is currently hiding in Serbia, having made his way there via Dubai from his Singapore residence.

How Does Terra Work?

Terra was once one of the top blockchains in the industry. At one time it was second only to Ethereum in total value locked (TVL).

Its collapse in early 2022 put paid to that, but many community members remain keen on building atop its reincarnated form. In October 2022, Terra developers floated a proposal called Terra Expedition that revises the developer mining and alignment programs put in place at launch.

This initiative to make Terra more attractive to developers underlines that it is still a performative, scalable, highly secure blockchain when supported by enough validators.

Terra aims to continue the legacy set by the original Terra, but with one big exception: the UST stablecoin is no more. Terra is a foundational layer 1 blockchain, but it is moving forward without the algorithmic stablecoin network that had previously defined it.

UST isn’t entirely dead, though. It’s now called USTC and remains on the Terra Classic blockchain.

What Makes Terra Unique?

Terra has less about it than the original pre-collapse Terra ecosystem, thanks to the absence of its innovative stablecoins. However, it is still a high-performance blockchain that was known at one time for ease of use and a world-class user experience (UX).

This is part of the platform with which Terra stakeholders are attempting to rebuild, along with significant support and heightened incentives for developers.

The Terra Expedition proposal earmarks 20 million LUNA for a developer grants program, and dApps are also eligible for significant reimbursements for smart contract audits.

However, Terra has a long way to go. Its collapse in May 2022 saw upwards of $20 billion in value erased, and only a tiny fraction of that amount has been re-established.

How is the Terra Network Secured?

Just like its predecessor, Terra is powered by Tendermint proof-of-stake. Validators stake their LUNA tokens as collateral and earn rewards proportional to their stake when they propose and validate blocks. This is incentivized by an annual inflation rate of 7%, which goes to validators.

Smallholders can also participate in network consensus by staking their LUNA tokens to a validator. In this fashion, the validator can earn more rewards in total and pass a portion of them back to delegators.

What is the Use of LUNA?

The main function of LUNA is to maintain network consensus via staking. However, it is also used as the network’s utility token, meaning that it can play multiple roles, including payment of transaction fees.

How Much LUNA is In Circulation?

LUNA tokens were airdropped to LUNC stakers and holders, as well as UST holders and Terra app developers. The wallet of Terraform Labs was also reportedly removed from this airdrop, putting Terra even more firmly in the hands of the community.

The airdrop was carried out over just one month, in September and October 2022. It took into account snapshots made before the collapse, on the 7th of May 2022, and after, on the 27th of May.

The LUNA token has a supply of 1 billion, with 35% distributed to pre-attack LUNA holders and 10% to holders of UST on Anchor. Post-attack LUNC holders received 10%, while USTC holders picked up 15% of the LUNA supply.

20% of the LUNA supply went into a community pool controlled by staked governance.

How Do You Buy LUNA?

While still striving to achieve its previous heights, Terra is still a blockchain of good repute since its collapse wasn’t due to security reasons but rather a well-executed economic attack.

This is reflected in the sheer variety of top exchanges that have already listed the token and supported its hard fork. You can use several fiat currencies to buy LUNA, and purchasing it with stablecoins like USDT and USDC is also easy.

How Do You Store LUNA?

You can store LUNA on various wallets, including the official Terra Station app or the brand new Leap Wallet, which has a whole host of next-generation functions baked in. One of the main advantages of non-custodial wallets like these is that you can stake LUNA yourself and participate actively in securing the network.

Is LUNA a Good Investment?

LUNA resembles hope for some but is also a significant opportunity for many. The struggles of the firm originally behind Terra or its founder, Do Kwon, don’t really apply anymore since the blockchain has forked and become even more decentralized in their wake.

While Terra’s ecosystem and stablecoin functionality were shattered by its collapse, Terra presents an opportunity to start anew. The platform itself remains attractive for developers, and if the community returns and regrows, the LUNA token may also reestablish itself at the top of the pile.