Co-founder of blockchain Terra, Do Kwon announced a new plan to restore the ecosystem after the crash of two Terra network tokens namely Luna and Terra USD. The plan is to create a new blockchain which is a hard fork of the previous blockchain.
A hard fork is a change that is not compatible with the old version. This can happen if there is a contradictory change from the old protocol. Reported from Cointelegraph , Tuesday (17/5/2022), as Kwon said, Monday 16 May 2022, Terraform Labs will submit a new governance proposal on 18 May to fork the blockchain called Terra.
Later, the new chain will not be linked to the stablecoin Terra USD (UST). Meanwhile, the old Terra blockchain will continue to exist with UST and will be called Terra Classic (LUNC). Under Kwon’s plan, if passed, the new LUNA blockchain will go live on May 27.
Under this proposal, new LUNA tokens will be delivered to LUNC holders, UST holders, and key developers of the Terra Classic blockchain.
In addition, the Terraform Labs wallet with the address terra1dp0taj85ruc299rkdvzp4z5p fg6z6swaed74e6 will be removed from the whitelist for airdrops, thus making Terra a completely community-owned chain.
The proposed LUNC supply is capped at 1 billion, with 25 percent going to community pools, 5 percent to key developers, and 70 percent to LUNC and UST holders across various event snapshots in May, depending on vesting conditions.
Terra Get Criticism
However, it turns out that the plan has been criticized by Binance CEO Changpeng Zhao. Zhao said he doesn’t think Terra’s plan to fork the blockchain will work as it won’t provide any value.
“This won’t work. Forking doesn’t give any value to the new fork. It’s just wishful thinking,” Zhao said, quoted from Theblockcrypto, Tuesday (17/5/2022).
Zhao’s tweet came after Kwon proposed Terra’s revival plan after it collapsed last week. Kwon proposes forking the Terra blockchain creating a new chain and distributing 1 billion tokens to stakeholders.
However, according to Zhao, “minting coins (minting money) does not create value.” It just “unfreezes existing coin holders.” Zhao also questions where Luna Foundation Guard’s Bitcoin reserves are.
“Shouldn’t that BTC ALL be used to buy back UST first?” Zhao asked.
Overall, Zhao is “very disappointed” with how the Terra team handled the collapse of the stablecoin UST and its associated token Luna (LUNA).
Binance Labs is known to be an early backer of Terraform Labs, which led an initial USD 32 million round in 2018. Terraform’s other well-known investors include Coinbase Ventures, Polychain Capital, Pantera Capital, and Hashed
USD 3 Biillion Bitcoin Reserve Sold to Save Terra USD
Previously, investors were eager to find out what happened to the $3 billion stash of Bitcoin that crypto firm Terra bought to support the currently failing stablecoin.
Luna Foundation Guard (LFG), the company formed by Terra creator Do Kwon, said Monday it spent nearly all of the Bitcoin in its reserves in an effort to save Terra USD (UST).
The foundation has raised a total of more than 80,000 bitcoins, which were worth nearly $3 billion last week, as well as other tokens including BNB, tether, USDC and Avalanche. Kwon has promised to use Bitcoin in case of a dramatic drop in the value of the UST.
In a series of tweets, Luna Foundation Guard said it had transferred 52,189 Bitcoins to “trade with counterparties” as the UST fell below its intended USD 1.00 target. The 33,206 bitcoins were sold by Terra outright in a last-ditch effort to hold on to the stake, the foundation said.
As of Monday, Luna Foundation Guard had only 313 Bitcoins left in its reserves, worth around USD 9.3 million. The company said it would use the remaining USD 85 million worth of crypto assets including some BNB and Avalanche to compensate the remaining users of UST.
“We are still debating through various distribution methods, updates will follow soon,” said the Luna Foundation Guard, quoted from CNBC, Tuesday, May 17, 2022.
What is UST?
UST is what is known as an “algorithmic” stablecoin. Unlike tether and USDC, which hold fiat assets in reserve to back their tokens, UST relies on a complex set of codes, coupled with a reserve token called luna, to balance supply and demand and stabilize prices.
When UST started dropping below USD 1.00 last week, Luna also started selling, creating a vicious cycle that saw UST plunge to less than 30 cents while luna became worthless. UST is now worth just 9 cents, according to CoinGecko data.
An independent economist, Frances Coppola says it becomes a big problem when it comes to dealing with stablecoins like UST.
“The big problem when you’re dealing with partially-guaranteed stablecoins like UST is that your hard-backed Bitcoin, in this case will be much more valuable to investors than its governance token or Luna,” said Coppola.
A catastrophe hit the crypto market, wiping out more than USD 200 billion of wealth in one day. Bitcoin on Thursday fell below USD 26,000, its lowest level since December 2020.