The crash of TerraUSD (UST), Terra’s stablecoin, continued to reverberate in the crypto ecosystem on Monday. Terra’s co-founder Do Kwon outlined a new revival plan, after detailing one on Friday, for his beleaguered stablecoin UST. The coin became unhinged from its peg to the US dollar last week and continues to trade at prices far below its 1:1 intended value.
Kwon’s plan envisages a “reconstituting” of Terra’s blockchain. In simple words, this means that he wants to fork Terra’s blockchain and establish a completely new chain. It also means that the latest experiment in algorithmic stablecoins – a holy grail for crypto enthusiasts – is over.
UST, the algorithmic stablecoin, will be discontinued. But Luna (LUNA), the underlying crypto which was supposed to maintain UST’s peg, will be reinvented as a native token of the new Terra blockchain. The existing Terra chain will be renamed Terra classic and its native token will be Luna classic (LUNC). The new Luna token will be airdropped, or distributed for free, to Terra wallet holders. Based on the timeline supplied by Kwon, the new chain is expected to become functional on 27th May.
Not A New Playbook
Do Kwon’s revival plan is hardly a new playbook. Ethereum, the world’s second most valuable blockchain, underwent a similar fork back in 2016 after it was hacked. Kwon, in fact, referenced the hack attack in his plan. “$UST peg failure is Terra’s DAO hack moment – a chance to rise up anew from the ashes,” he wrote, referencing the hack that spelled an end to Ethereum’s attempts to create a decentralized venture capital firm of sorts.
Of course, Terra’s case is completely different. UST’s collapse is the crypto equivalent of a bank run. Investors sold off the stablecoin, and its underlying token Luna, after they lost confidence in the token’s ability to hold its peg to the US dollar. Not even the sale of more than $2 billion worth of Bitcoin or rapid issuance of LUNA, which swelled its circulating supply the markets to 6.5 trillion, could convince investors about the inherent instability of UST.
In the latest edition of his plan, Kwon has proposed capping the number of Luna tokens to one billion in the new blockchain. [Previously, there was no limit to the number of LUNA tokens that could be issued on the blockchain].
Thirty-five percent of that figure will be distributed to wallets that contained Luna on 7th May at 8 pm UTC. Ten percent and 25 percent of the new Luna tokens will be given to investors who continue to stake Luna tokens and former UST holders respectively on 27th May at 03:59 UTC. The new tokens will be subject to vesting periods ranging from one year to two years, meaning investors will be able to gain full ownership and sell their holdings after that period. Twenty five percent of new tokens will be earmarked for development initiatives in the community pool. The remaining Luna tokens, amounting to roughly 2 percent, will be set aside for developer initiatives.
“Terra Is More Than UST”
In a Twitter thread, Kwon told his followers that the Terra blockchain was more than its stablecoin UST. [Note: He should have told this to investors before pumping up the coin’s valuation]. “We believe this token distribution, in addition to best efforts by LFG to make $UST holders whole, best solves for the varying interests and time preferences for each stakeholder group, and most important, creates the most viable path to revive the Terra ecosystem,” he wrote. The proposal will be put to vote amongst Terra validators on May 18th Asia Time, according to The Block.
Given past precedent crypto’s supposedly ‘decentralized’ networks, chances are pretty high that the proposal will be passed and there should be a new Terra blockchain, sans UST, in the near future. It also means that hedge fund manager Mike Novogratz gets to keep his tattoo.