Why Terra (Luna) and UST Coin Are Soaring Today

The founder of Terraform Labs has a plan to revive the broken blockchain.

What happened

Earlier this month, the Terra Blockchain (LUNA) virtually collapsed. The collapse began when the stablecoin TerraUSD (UST) lost its peg to the U.S. dollar and the built-in arbitrage mechanism failed to fix the problem. At that point, panicked investors began selling Luna and TerraUSD en masse.

However, Terraform Labs founder Do Kwon has a plan to revive the broken blockchain, and the optimism surrounding that plan is causing both coins to soar today. As of 3:00 p.m. ET, Luna and UST are up 62% and 25%, respectively, in the last 24 hours.

A crypto investor watches the price charts on a computer and smartphone.

IMAGE SOURCE: GETTY IMAGES.

So what

Kwon discussed his plan to revive Terra in a recent blog post. Specifically, the blockchain will be forked to create a new chain, but the new chain won't include UST stablecoin. Kwon's plan also calls for the creation of 1 billion new Luna coins to be distributed to developers alongside Luna and UST holders before and after the crash.

The voting phase is still open, but the proposal has already passed the threshold for approval, and the spin-off is scheduled to take place on May 27. At that time, the old chain and cryptocurrency will be known as Terra Classic and Luna Classic, while the new chain and cryptocurrency will be known as Terra and Luna. Of course, Kwon's proposal doesn't guarantee that investors will recover all the losses incurred by the crash. The market will have to decide what the new Luna coin is worth.

What now

Terra was once a thriving ecosystem of decentralized financial services (DeFi). Anchor (ANC) was the crown jewel, a lending protocol that paid 20% interest on UST deposits. But the platform also included a number of other notable applications. The Mirror protocol allowed investors to trade synthetic assets, and the Chai payment app had over 2 million users in South Korea.

After the collapse of the blockchain, the future of the Terra ecosystem is questionable at best. The relationship between UST and Luna was the main source of value. DeFi products like Anchor were intended to drive demand for UST, and Luna was intended to buffer the volatility of the stablecoin price. To that end, Luna was supposed to become more valuable as demand for UST increased. Instead, the opposite happened and investors lost over $40 billion.

Even if the new blockchain gains the trust of the crypto community, Terra won't be the same without its native stablecoin. For this reason, I think this is a situation to watch and wait. Terra could regain its former glory or fade into the background of the crypto industry.

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The Terra blockchain fiasco will go down in crypto history as one of the craziest events of the last 13 years. It all started in the second week of May when the once stable coin Terrausd (UST) lost its peg to the $1 parity. This led to a massive bank-like event where billions of dollars worth of cryptocurrencies were withdrawn from Curve Finance, Lido and decentralized finance (defi) lending app Anchor Protocol.

The value of the Terra blockchain token (LUNA) also dropped significantly as the network's LUNA /UST exchange mechanism drove the coin into a death spiral. The entire Terra ecosystem was removed from the list of top crypto projects and now sits in last place among a whole host of failed digital currencies.

For a while, however, Terra was considered one of the hottest blockchain projects around, and LUNA reached an all-time high of $119.18 per unit on April 5, 2022. Today, things look different, with a single LUNA now trading for $0.00018000 per unit. While many disliked Terra's co-founder, Do Kwon, many liked his attitude.