Topics Altcoins
Bybit Learn
Bybit Learn
Intermediate
30 Th05 2022

Terra 2.0: What the Future Holds for LUNA

With the recent collapse of the Terra platform, many TerraUSD and LUNA classic holders are wondering what's next for the blockchain. Even though only a few weeks have passed since the Terra blockchain collapsed, a new iteration of this blockchain is already set to launch. This version of Terra is referred to as Terra 2.0. Once introduced, the revival of this platform passed with approval of more than 65% of holders. The following guide details everything you need to know about Terra 2.0, and can help you decide whether or not to add the new LUNA coin to your portfolio.

What Is Terra 2.0?

Terra 2.0 is a new version of the Terra classic blockchain. It will include a relaunch of the cryptocurrency known as LUNA. The new LUNA coin will replace the old one, and will be traded via the LUNA ticker.

Terra 2.0 is different from the old platform, which is now referred to as Terra classic. Now that the platform has launched, the new Terra will be officially established with the original branding. New Terra tokens are set to be distributed to any previous UST and LUNA holders via an airdrop. The main difference between Terra classic and the new Terra is that Terra 2.0 won't be backed in any way by either Terraform Labs or Do Kwon. Instead, Terra 2.0 will be 100% community-owned.

How Does Terra 2.0 Work?

As touched on previously, Terra 2.0 is essentially a new version of Terra classic that's meant to last. Even though Terraform Labs and Do Kwon aren't set to be a part of Terra 2.0, the company behind Luna and Terra developed a "strong revival plan" that was meant to effectively salvage the entire Terra classic ecosystem by creating the new Terra. This plan was the first to receive the Terra 2.0 moniker.

While there are strong signs that Terra 2.0 won't befall the same fate as its predecessor, cryptocurrency exchanges and tech entrepreneurs are currently divided on the viability of providing support to the Terra 2.0 blockchain.

The plan that Do Kwon and Terraform Labs originally created centered around validating every invalid block as well as the blockchain network transactions, which would allow the new LUNA coin and Terra 2.0 to flourish. This plan was set to occur via a hard fork, which meant that Terra 2.0 wouldn't be directly linked to LUNA classic but would still be part of the same blockchain.

While Do Kwon's proposal was considered, it received very little support. Instead of being based on the original Terra blockchain, Terra 2.0 is tied to an entirely new blockchain, to be referred to as the new Terra. The original LUNA token has switched over to LUNA classic.

Investing in Terra 2.0

If you're thinking about investing in Terra 2.0, keep in mind that the Terra and LUNA coins are considered to be sister coins, which means that maintaining balance between these coins requires users to purchase some Terra before exchanging it for LUNA. This process results in a small amount of profit. 

There are already numerous exchanges that have listed the new LUNA, including Bybit

On May 24, it was announced that the Terra 2.0 testnet was live, which means that all of the mechanics for this new blockchain platform are now locked in. All that's left is for the new LUNA tokens to be airdropped, which is set to occur at different intervals.

Airdrop of New LUNA Tokens

In an airdrop, coins are essentially given away for free. In most cases, these coins are provided as a promotion for a new coin. While the new LUNA airdrops are meant to promote the Terra 2.0 stablecoin, they’re also designed to compensate existing owners of LUNA classic, as well as TerraUSD.

How the Airdrop Works

The number of new LUNA coins that a LUNA classic holder can receive depends on the amount that they currently hold, and when these tokens were acquired. While it's easy for Terra 2.0 to take the number of coins someone had into account when providing an airdrop, some of these tokens were obtained after the LUNA currency began to collapse. In order to make sure that LUNA classic holders who purchased the currency after the collapse don't receive too many new coins, pre-crash and post-crash snapshots are maintained by the Terra 2.0 platform.

The pre-collapse snapshot was taken around May 7, 2022. On the other hand, the post-collapse snapshot occurred 20 days later on May 27. Holders of LUNA before the collapse occurred will receive an airdrop that's close to 1:1 of what they held at the time of the collapse. In comparison, crypto investors who purchased these coins after the collapse are set to receive an airdrop that amounts to a ratio of 1:0.000015 to match the value on May 27.

Multiple Airdrops of New LUNA Tokens Will Occur

The two additional airdrops are meant to compensate TerraUSD holders, which involves paying holders of this stablecoin before it dropped from its peg, as well as the ones who purchased the stablecoin after the peg dropped. UST holders before the crash will receive an airdrop that's valued at 1:0.033. On the other hand, people who purchased the stablecoin after this event will receive Terra 2.0 at 1:0.013.

Let's say that you hold 1,000 UST on May 27. In this situation, you will receive 13 new LUNA tokens via an airdrop. An individual who holds 1,000 LUNA classic tokens on May 27 will receive 0.15 new LUNA tokens. Regardless of the category that an investor was in, they received 30% of their total airdrop upon the launch of Terra 2.0, which was on May 27. The remainder of the airdrops will be vested linearly over a two-year time period, which comes with a cliff of six months.

Keep in mind that this airdrop is occurring in what's known as a "bonded state," which means that transfers won't be available for 21 days after receiving the airdrop. During this three-week period, the airdrop will become unbonded. This type of delay caused many stakers and investors to lose millions when the initial LUNA collapse occurred.

The reason that investors who hold a considerable amount of LUNA will only receive a portion of their Terra 2.0 tokens at launch is to make sure that they don't sell it off immediately. If every notable investor in Terra classic decided to sell their stake after receiving 100% of their airdrop, the new Terra would almost certainly fail. Any investor with more than one million Terra or LUNA classic tokens must wait one year before receiving a portion of their airdrop. The remaining portion will be vested over a four-year period.

What Will Happen to the Old Terra Blockchain?

Both TerraUSD and LUNA classic were native tokens of the initial Terra network, which was a blockchain project developed by Terra Labs. The goal of this blockchain platform was to provide a peer-to-peer electronic cash system. The two tokens that were available through this blockchain included UST and LUNA. UST was a stablecoin, which allowed it to be pegged directly to the U.S. dollar. This peg meant that UST was supposed to maintain a value that was close to one U.S. dollar. The LUNA coin was an essential component in making sure that UST kept its peg.

The peg was maintained via a standard contract-based algorithm. TerraUSD remained at or near $1 by burning LUNA tokens, which allowed new tokens to be created. On the original Terra platform, users needed to swap LUNA tokens for UST, and UST for LUNA. These trades would occur at a guaranteed $1 price, even if the market price of one token differed at the time of the trade.

Eventually, TerraUSD was no longer able to maintain the peg to the U.S. dollar, which resulted in its value dropping precipitously. However, the precise reason that this stablecoin lost its peg has yet to be discovered. When all of this took place, the algorithm that powered the entire platform attempted to correct the issue by issuing a considerably higher number of LUNA coins than normal.

In fact, total LUNA supply increased from more than 700 million tokens around May 5, 2022 to seven trillion tokens just eight days later. This resulted in LUNA losing upward of 99.9% of its total value. By introducing trillions of new coins to the market, a single coin’s value was eventually reduced to a mere fraction of a cent.

Now that the old LUNA tokens are essentially worthless, they’ve been renamed LUNA classic, and are listed under the LUNC ticker. As for the old Terra blockchain, it’s going to effectively cease to exist. New Terra is an entirely separate blockchain. In regard to the UST stablecoin, this is the one aspect of the Terra blockchain that will disappear completely. Even though new LUNA coins are being issued, the stablecoin won't be.

Where Is the New LUNA Being Distributed?

The first airdrop has already been distributed, and Bybit users will have received their new LUNA in their Spot Accounts. You can also check the Terra 2.0 Phoenix-1 Mainnet on the Terra Station Desktop App to view your wallet balance. 

New LUNA trading pairs are currently supported on Bybit.

Is the New LUNA Worth Investing In?

The viability of the new Terra on the cryptocurrency market remains to be seen. While many platforms have pledged to support the new coin, widespread adoption has yet to fully occur. Since this new platform no longer depends on a stablecoin being pegged to the U.S. dollar, a total collapse may be less likely. As with any crypto investment, conduct extensive research and analysis of recent price trends before going forward with an investment into the new LUNA.

The Bottom Line

Terra 2.0 looks to be an exciting platform, with the potential for a well-performing future. Nevertheless, keep the previous Terra collapse in mind. The best way to safeguard against substantial crypto losses is by diversifying your portfolio and making sure that you have a mixture of risky and safe crypto investments.