Kwon’s post-UST rebuild: What is Terra 2.0 (LUNA 2.0)?

Terra 2.0 is here, minus its disgraced sister stablecoin UST. Can Do Kwon’s Terraform Labs bounce back?

3D LUNA icon broken into pieces, blue black and red background – Photo: Shutterstock                                 
Can Terraform Labs pick up the pieces? – Photo: Shutterstock
                                

Contents

Click here for an in-depth price prediction for Terra Luna 2.0.

On May 25 2022, the future of Do Kwon’s Terraform Labs enterprise was determined by Prop 1623. Put to a vote by Terra Luna holders – the so-called LUNAtics – the community proposal to rebuild Terra Network sans the discredited UST stablecoin was agreed upon with a clear 65.5% “yes” vote. After the collapse in value of the LUNA token from more than $80 to around $0.0002, old LUNA was to be rebranded to Luna Classic (LUNC), UST to aUST, and the new LUNA 2.0 coin was to be airdropped to LUNC and aUST holders. 

Airdropping of the new LUNA 2.0 token swiftly commenced and on 28 May, the Terra v2 blockchain produced its first block. How has Terra Luna V2 fared since then? How does Terra 2.0 work and what is LUNA 2.0 coin used for? The following guide aims to give you everything you need to know and more. What is Terra 2.0 (LUNA 2.0)? Keep reading to find out!

The LUNA airdrop

If Terraform Labs was to salvage some of its reputation, fair distribution of the new Terra 2.0 (LUNA 2.0) token was of critical importance. Over 99% of LUNA 1.0 holders held less than $10,000 each before the pre-attack snapshot taken on 7 May, or 6.45% in total. One wonders if the LUNA 2.0 coin airdrop could have emphasised this portion of the community, which represented the vast majority of LUNAtics, over a handful of LUNA 1.0 whales.

Ultimately, the LUNA 2.0 coin airdrop was distributed evenly across account sizes, although some aUST whales were excluded. The breakdown was as follows:

  • Pre-attack LUNA 1.0 holders: 30% 
  • <$10,000 wallets subject to six month cliff then two year vesting period 
  • <$1m wallet subject to one year cliff, then two year vesting period 
  • >$1m holders subject to one year cliff, then four year vesting period 
  • Post-attack LUNA holders (snapshot taken on 27 May): 10%, subject to six month cliff then two year vesting period 
  • Pre-attack aUST holders ($500,000 whale cap): 10%, subject to six month cliff then two year vesting period 
  • Post-attack aUST holders: 15%, subject to a six month cliff then two year vesting period Community pool: 30%, with 10% earmarked for developers

All cliffs and vesting periods impacted 70% of allocation, while 30% was fully distributed instantly. The airdrop did not go seamlessly, with Terraform Labs’ Twitter page continuing to be flooded with claims of missing tokens.

Terraform Labs stated via Twitter on 31 May that “more information will be provided when we have gathered all of the data, so stay tuned”.

LUNA price action: the big sell off

The LUNA 2.0 airdrop had cliffs and vesting periods in place for 70% of supply, leaving 30% susceptible to being dumped. According to Currency.com, this is precisely what happened when previous UST holders, uninterested in the revamped project, engaged in a “massive sell off”.

LUNA 2.0 waned once again, falling from its debut price of $18 to $3.63 on the first day of trading. Two days later, on 30 May, LUNA 2.0 managed to crawl back above the $10 mark, although the run was brief. As of 31 May 11:30 BST (+1 UST), LUNA 2.0 was changing hands at $8.79.

LUNA: trading stats

LUNA 2.0 coin has a supply cap of one billion tokens, 210 million of which are currently in circulation. The exchange value as of 31 May 11:30 BST (+1 UST) was $8.79m, producing a market capitalisation of $1.75bn. A 24-hour trading volume of $854m comprised 45.1% of market capitalisation.

LUNA 2.0 quickly gained support from many high-profile centralised exchanges, including KuCoin, Binance, Gate.io and Kraken.

What is Terra 2.0 (LUNA 2.0)'s consensus method?

The Terra 2.0 cryptocurrency blockchain uses a standard proof-of-stake (PoS) consensus algorithm to validate transactions. At any one time, 130 validators participate in network consensus, with voting powers determined by the amount of LUNA 2.0 bonded to the node. Rewards are generated from gas fees and a 7% fixed annual LUNA 2.0 inflation rate.

LUNA 2.0 holders participate in consensus by delegating LUNA 2.0 tokens to a validator of their choice. Validators usually put up their own stake alongside delegates. In this system, the validation node retains a commission before distributing rewards to delegators.

Returns generated for Terra 2.0 cryptocurrency delegators vary between validators; those with higher voting power naturally generate more rewards, but they must be distributed among a larger pool of delegators.

At the time of writing, the top validator, Orbital Command, had 3.01% of voting power and was retaining 0% commission. The top 10 validators had a combined 14.73% of voting power, with commissions ranging from 0% to 10%.

Screenshot of top ten Terra validation nodes– station.terra.money
Not all validators retain a commission – station.terra.money

Delegating can be performed through the Terra Station portal, but be aware that it comes with an element of risk: validators can be penalised for misbehaving, resulting in staked LUNA 2.0 being slashed. Slashing can occur even if the validators accidentally goes offline for a short period of time.

LUNA 2.0 sans UST: Is there a point?

Before UST crashed, the utility of LUNA 1.0 was intrinsically linked to the stablecoin. To retain UST’s peg, a complex system of stablecoin arbitrage was conducted between the two cryptocurrencies. Given the close relationship between LUNA 1.0 and UST, it is fair to ask what the point of the former is without the latter.

There is no objective answer here. Brand power is a powerful thing, and before the crash, both UST and LUNA 1.0 were among the 10 largest cryptocurrencies by market capitalisation. Active LUNA 1.0 addresses numbered more than 400,000 in January 2022, not miles behind Ethereum’s active address count, which ranged between 480,000 and 54,000 in the same month.

Screenshot of number of previously active LUNA 1.0 accounts – Source: statista.com
Active LUNA 1.0 accounts topped 400,000 in December 2021 and January 2022 – Source: statista.com

Whether Terraform Labs can ever get these numbers back is debatable. LUNAtic or not, no investor wants to be fooled twice, and short-term price action has not exactly been positive. 

Enticing DApp developers could be even harder. A healthy LUNA 2.0 cryptocurrency needs a healthy blockchain ecosystem behind it, and a healthy blockchain ecosystem needs a thriving community of developers committed to bringing the ecosystem to life.

Needless to say, it is still very early days, and no one can be sure if LUNA 2.0 will come out on top or wane once again. 

FAQs

Terra 2.0 (LUNA 2.0) was launched on 28 May after a successful vote under Prop 1623 by the LUNAtic community.

There are currently 210 million LUNA 2.0 coins in circulation, out of a supply cap of one billion.

Do Kwon is the Singapore-based co-founder and chief executive officer of Terraform Labs, the company behind the Terra blockchain, former UST stablecoin, and the LUNA 2.0 cryptocurrency.

Terra 2.0 (LUNA 2.0) is secured via 130 active proof-of-stake validators. Many in the crypto community have obvious concerns about the stability of LUNA 2.0 given the disaster that befell the coin’s previous iteration. So far, no evidence of hacking or foul play has been discovered, although investors should understand the risks before opening a LUNA 2.0 position. Foul play or not, LUNA in both its iterations has proved to be a volatile asset. Currency.com recommends conducting thorough due diligence coupled with independent financial advice before investing.

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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