LUNA vs. LUNC: Are These Terra Projects Still Good Investments?

The market is still reeling from the spectacular collapse of the Terra ecosystem in May 2022. The trouble started when Terra's algorithmic stablecoin, UST, lost its peg to the dollar, sending its sister token, LUNA, into a hyperinflationary death spiral. Within a week, the two tokens, previously among the top 10 cryptocurrency tokens, had become almost worthless, wiping out over $40 billion of investors' funds.

Do Kwon, the founder of Terraform Labs (developer of the Terra Blockchain), proposed a hard fork in an attempt to revive the project. The hard fork implementation resulted in a new chain with a native token called Luna (LUNA), and the original Terra blockchain's native token was renamed Luna Classic (LUNC).

With the market yet to recover from the debacle, Terra's back in the news again. This time, LUNC, the native token of the original Terra blockchain (Terra Classic), gained an impressive 400% in a month, launching it into the top 30 cryptos by market cap.

Is it the right time to return to Terra? First, let's analyze the recent price hikes of LUNA and LUNC and what they mean for investors.

What Is Terra?

Terra is a Cosmos-based blockchain payment platform built to support algorithmic stablecoins (crypto assets that automatically track the price of fiat currencies or other assets). The Terra blockchain attempts to leverage the combination of fiat currencies’ price stability and the censorship-resistance of decentralized networks to offer users instant and affordable exchanges, payments and settlements.

Terra, a Layer 1 blockchain, was powered by LUNA, its native token used for governance and staking, and UST, its main stablecoin. The two tokens had an innovative symbiotic relationship that involved a price-balancing model. Using smart contracts, Terra incentivizes users through an arbitrage model that seeks to keep the supply of UST in constant equilibrium with demand, thereby sustaining the 1:1 USD peg.

Terraform Labs, the startup behind the Terra ecosystem, was co-founded by Do Kwon and Daniel Shin in 2018. The Terraform team started developing the project the same year and officially launched the mainnet in April 2019. 

Do Kwon, who assumed the CEO role, had previously founded Anyfi, a blockchain startup that provides decentralized wireless communication network solutions. He was also a software engineer with Microsoft and Apple.

Diversification and Utility

By 2021, the Terra network had rolled out various stablecoins pegged to different fiat currencies, including TerraUSD (UST), TerraCNY, TerraGBP, TerraJPY, TerraKRW, TerraEUR and TerraSDR (pegged to the International Monetary Fund's SDR). Terra stablecoins facilitated cross-border payments and instant swaps at negligible fees.

This robust real-world utility made Terra a leading stablecoin payment system, and Terra UST quickly became the third largest stablecoin by market cap. The Terra ecosystem expanded in the DeFi space and included over 100 projects, notably Anchor Protocol, LoTerra, Chia, Vega Protocol, Mirror Protocol and Talis Protocol, which provide various solutions for millions of users globally.

The Terra Meltdown

On May 8, 2022, TerraUSD (UST) briefly lost its peg to the dollar, slipping from $1 to $0.985. Although it regained its peg, the event cast doubts over the project's sustainability. What followed next was a devastating erosion of value as investors rushed to liquidate their UST holdings.

To understand the Terra meltdown, we need a basic grasp of the underpinning mechanism of the LUNA-UST symbiotic relationship.

Users can swap 1 UST for $1 LUNA on the Terra Station wallet. This means that if UST drops below its $1 peg, say to $0.90, users can exchange it for $1 LUNA and then sell it for $1, making a profit of $0.10 on the transaction. The supply of UST will shrink, and demand for the token will rise as users leverage the arbitrage opportunity to make a quick buck. This buying pressure will force the price of UST back to its peg of $1.

Blockchain Reaction

The next day, May 9, UST lost its peg again, this time plummeting to $0.35. With the depegging of UST and the rising concern over the viability of the algorithmic stablecoin model, an organization known as the Luna Foundation Guard (LFG) managed to raise and deploy $3 billion in assets, such as BTC and AVAX, to hedge against further slippage of UST against its dollar peg. Do Kwon and the Terra team had set up LFG in January to shore up UST's stability and support the growth of the Terra ecosystem.

However, these efforts were too little too late, and the devastating liquidations continued. Within days, UST's price dropped from $1 to $0.044. LUNA wasn't spared. As investors dumped UST, the mint-and-burn mechanism — which was supposed to stabilize UST’s peg — ensured the circulating supply of LUNA grew exponentially, causing its price to plummet from $80 to less than $0.10. 

The arbitrage mechanism failed, and swapping 1 UST for $1 LUNA became impossible as slippage — the quoted price vs. the actual exchange price — increased exponentially.

The Dominoes Fall

Within days of the Terra ecosystem's collapse, its contagion effect pulled down several top crypto companies linked to Terra in an intertwined web of loans. Leading crypto hedge fund Three Arrows Capital (3AC), Voyager Digital and Celsius Network were unwitting dominoes that filed for chapter 11 bankruptcy and collapsed in the aftershock. Several DeFi protocols and stablecoins, such as USDX collateralized partially by UST, also went down. The shockwave traversed the cryptoverse, spooking investors and depressing an already bearish market. Bitcoin dropped to $26,000, its lowest price in 16 months.

In the aftermath of the Terra fiasco, it was revealed that Do Kwon had dissolved Terraform Labs Korea shortly before the drastic turn of events. It was also alleged that he was involved in Basis Cash, another algorithmic stablecoin that failed shortly after launch.

Terra's Revival Plan: LUNA and LUNC

In an attempt to salvage the situation, the embattled Do Kwon proposed the Terra Ecosystem Revival Plan 2. His proposal to Terra's developer community involves creating a new blockchain through a hard fork (a major split in a blockchain, typically to resolve differences arising within a community). The new chain's native token would be distributed among community members in proportion to their UST and LUNA holdings.

Most validators (network custodians who keep it running by validating transactions) voted in favor of the revival proposal.

Accordingly, the fork was implemented, and a new Terra blockchain (Terra 2.0) went live on May 28, 2022. Its native token inherited the LUNA name. The original blockchain, now referred to as Terra Classic, remained active, but with little visible development activity. Its token was renamed Luna Classic (LUNC).

LUNA vs. LUNC Comparison

Finding it tough to tell them apart because they both have Terra in their names and are operating in parallel to each other? Don’t fret, our LUNA vs. LUNC comparison will easily clear up any confusion. While the two tokens share the same provenance, they’re different in a few fundamental ways.

Origins

Essentially, Terra Classic (LUNC) is the new name for Terra's original Luna token, linked to the doomed stablecoin, TerraUSD (UST), which was launched in 2018. LUNC (still LUNA at that time) dropped dramatically when UST lost its peg to the dollar, as the algorithm meant to stabilize UST minted trillions of tokens, causing it to lose almost 100% of its value in the process.

Luna (LUNA) is the name for the native token of the new offshoot blockchain, launched on May 28, 2022. Holders of the old UST and LUNC received the brand-new LUNA tokens through an airdrop in the first token distribution rounds.

Lack of a Stablecoin

LUNA cut its ties to the UST stablecoin after the fork, while LUNC retained it under a new identity, TerraClassicUSD (USTC). This might be viewed as a strategic decision to lay low amid scrutiny from the House of Representatives as they’re drafting a new US stablecoin bill that will ban algorithmic stablecoins for the next two years.

Tax Burn Mechanism

Recently, Terra Classic has been in the news thanks to a tax burn policy being passed. Edward Kim, a community member, proposed the 1.2% tax burn on September 1. Proposal #3568, as it's officially known, will charge a 1.2% fee for all on-chain USTC and LUNC transactions across different wallets and smart contracts. Aiming to make LUNC a deflationary token, the proposal entails burning the tax (or removing permanently from the circulating supply) by sending it to a dead address. The tax burn will continue till the total supply of LUNC is slashed to 10 billion, where it will remain unaltered.

The hype surrounding the proposal before it went live on September 20 sent LUNC soaring by over 250% to $0.000594 by September 8, 2022. This excitement was further driven by Binance’s decision to be onboard with the proposal and implement the burn mechanism on its LUNC spot and margin trading pairs.

LUNC vs. LUNA Tokenomics

According to CoinGecko, the price for LUNA as of September 29, 2022 was $2.49 in the past 24 hours. LUNA has a daily traded volume of $168,176,481 and a current market cap of $411,316,857, with a total circulating supply of 165,041,684 LUNA tokens.

Terra Classic (LUNC)'s price as of September 29, 2022 was $0.00028034 in the previous 24 hours, with a 24-hour trading volume of $676,746,092. The token had a market capitalization of $1,956,290,506 and a circulating supply of 6,900,774,631,923 LUNC tokens.

Should You Buy LUNA or LUNC Now?

Understandably, the FUD (fear, uncertainty and doubt) surrounding LUNA and LUNC is palpable. Given the rumors of underhand dealings by Do Kwon and the Terraform Labs team, it may take a while for the investing public to regain confidence in the tokens, especially LUNC. 

However, LUNA has comparatively more prospects of a bullish future since it severed ties with the old terra blockchain and its problematic stablecoin. Development on the original terra blockchain has petered out, due to little or no incentives for developers to build new projects on the chain.

Therefore, LUNA is a better option to buy if its rocky antecedents don’t scare you. Still, it may take some time before LUNA sees any sustainable growth. The new blockchain has to incentivize the multiple protocol development teams who worked on the old terra ecosystem to build on the new Terra 2.0 chain. They need to gain confidence to continue building applications on the new chain. This is vital to LUNA's growth, since the long-term prospects of any utility token depend on its use cases and the real-world solutions it can provide to users.

Proceeding With Caution

With the recent LUNC pump, it may seem like an attractive investment. But any token that

appreciates by 400% in such a short period should be approached with caution. 

As previously explained, part of the reason for the LUNC pump was the news of the proposed 1.2% tax burn, which promised to make the token deflationary in order to shrink the overabundant supply and drive demand and price. The news triggered a wave of speculation that saw the token apparently rebound. 

However, even after taking into account LUNC’s recent rally, it falls desperately short of the original LUNA at its peak. While the LUNC token rose to a post-collapse all-time high of $0.0005888 on September 8, LUNA's price was over $100 in March earlier this year. 

It followed that investors who suffered massive losses in the Terra ecosystems crash might

be excited by the hope of recovering their investment, seeing the strong efforts by the dedicated Terra community to revive the project. This is another reason for LUNC's recent gains.

Looking Twice Before You Leap

In the end, the most critical question is if the two Terra tokens will be able to regain public trust after such a devastating implosion. Aside from the tax burn, a tactic which hasn’t always proven effective, there's little going on in terms of developments to make the Terra Classic project stand out from the crowded smart contract blockchain space. 

Again, the Terra Classic chain still retains the algorithmic stablecoin mechanism that brought it down in the first place.

Nevertheless, the LUNA and LUNC tokens have made remarkable recoveries in light of past events. After all, both tokens and their networks are still hung over from the debacle, with founder Do Kwon and Terraform team facing multiple probes and lawsuits.

So, is this an excellent time to buy LUNA or LUNC? Indeed, things seem to be looking up for the two Terra tokens. Nevertheless, you’ll need to research extensively and exercise due caution before investing in LUNA and LUNC. Before we proceed further, here is the general sentiment when it comes to price predictions for LUNA and LUNC.

LUNA vs. LUNC Price Prediction

LUNA Price Prediction

According to Walletinvestor, LUNA could make an excellent long-term investment, possibly reaching $34.640 within one year, and up to $160.227 by 2027.

DigitalCoinPrice's predictions are more cautious. They foresee LUNA passing $2.43 by year-end, eventually getting up to $2.95. They also believe that LUNA's price can reach a maximum of $12.45 by 2027.

Analysts at Priceprediction.net envision LUNA’s price hitting $2.26 by year-end. Subsequently, they predict the maximum prices for 2023 and 2025 at $4.07 and $8.62, respectively.

LUNC Price Prediction

Terra Classic (LUNC) is expected to climb to $0.000842 in one year and $0.00235 by 2007, according to forecasts from WalletInvestor.

DigitalCoinPrice forecasts LUNC's price to reach $0.000274 by year-end. By 2025, they predict the token's price will rise to $0.000942.

CryptoPredictions.com projects a price of $0.0002032 to close the year. By 2023, they expect the LUNC price to jump to $0.00195 and up to $0.00246 by the end of 2025.

How to Invest in LUNA and LUNC

Are you interested in investing in LUNA and LUNC? Bybit offers a straightforward process to purchase the tokens. Here’s a step-by-step guide.

1. Start by creating an account on Bybit. Complete the registration process on either the Bybit web or through the app. Verify your KYC to enhance your limits on trading volume, deposits and withdrawals.
2. Go to the Bybit Fiat Gateway and buy USDT with the fiat currency of your choice available on the platform.
3. Once your account is funded, locate and hover over Spot Trading from the Trade tab drop-down.
4. Select the LUNA/USDT pair or LUNC/USDT pair.
5. Select market, limit or conditional order.
6. Enter the order price and quantity and confirm your order details.
7. Click on Buy LUNA or Buy LUNC to conclude your trade.

The Bottom Line

Investors have shown considerable interest in LUNC and LUNA, as evidenced by their recent price gains. This interest could be attributed partly to the speculation fueled by the LUNA tax burn proposal — and to badly-burned investors trying to recover some of their funds based on hopes for a successful revival of the Terra ecosystem.

However, the new Terra 2.0 chain shows more promise in terms of utility and growth potential. The community of developers behind the project created it as a more promising alternative for protocol developers, who don’t want to build on the moribund Terra Classic chain. This makes LUNA a safer bet over the long term, as developers are likely to add more protocols to the new Terra ecosystem, thereby driving growth.

If you're wondering where you can buy and sell LUNA and LUNC, you're already in the right place. Register with us and get started with your crypto investing journey today.