What Will Happen with the Terra 2.0 Fork and Airdrop?

Recently, the Terra cryptocurrency experienced a death spiral that caused the UST stablecoin to drop from $1 to $0.05, and the LUNA coin to drop literally 100%. In an effort to restart the project and repay holders their losses, the Terra community has agreed to start a new blockchain, Terra 2.0, on May 27th. 

The UST and Terra fiasco is well-known within the cryptocurrency industry at this point, as it is the main cause of the bear market that we are currently in. To summarize, UST was a stablecoin that was algorithmically pegged to the dollar. It accomplished this peg using its sister coin, LUNA. 1 UST could always be minted using $1 of LUNA, and $1 of LUNA could always be redeemed for 1 UST. This system worked to help UST keep its peg until early May, when UST spiraled downward and had no chance of recovery, causing both UST and LUNA to drop to being worthless. 

This event was detrimental to the cryptocurrency market and caused hundreds of billions of dollars in value to disappear seemingly overnight. Regulatory agencies took the opportunity to call for more regulations on stablecoins, which will be a net negative for the industry. Additionally, Terra founder Do Kwon has come under fire for his role in the project and may face legal repercussions.

Recently, the Terra community has voted to try and redo the Terra blockchain with a new project, Terra 2.0. Its new token, listed as LUNA2 on most exchanges, will be airdropped to holders of UST and LUNA both before and after the attack. The snapshot dates and vesting schedule can be seen below:

Most Terra dApps and projects are migrating to the new chain, and prominent exchanges like Bitfinex, FTX, and Kucoin are supporting the new project. Additionally, unlike the original LUNA coin which had an infinite supply, LUNA2 will have a hard cap of 1 billion tokens.

Since some of the new LUNA will be vested, it means that there will not be massive sell pressure as soon as the coin is released. This should help prevent another death spiral disaster for the project, but it is likely that anyone who can sell will sell to recoup some of their Terra losses.

It is unknown how this new blockchain will recover and create a new version of UST. There is little chance that another algorithmic stablecoin will work, as nobody will trust it due to its previous failure. This means that the idea of this new LUNA will be in question from the start, and it presently has little to no use case. Some speculate that this is a move to appease disgruntled investors and offer the opportunity to make some money back, as opposed to a genuine attempt to revive the blockchain and create a new stablecoin project. If LUNA2 fails, it will likely be the death knell for the Terra ecosystem.

In the futures market, LUNA2 is being priced at around $5, but that is in no way a guarantee of the asset’s value, and it could drop significantly once the project goes live. 

As with any cryptocurrency black swan event, the chaos that ensues causes irrational behavior and grief, and the revival of Terra as Terra 2.0 is no different. The idea of reviving a project that faced a natural death will be incredibly difficult to pull off, especially with the loss of reputation that the project now has. Whether or not the project takes off in the same way Terra Classic did, investors will hopefully take the opportunity to recoup some of their losses from Terra Classic and not make the same mistake again.

By Lincoln Murr

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