The Shock of Death
Once upon a time, Terra was a promising blockchain platform that aimed to offer fast, low-cost transactions to users all around the world. With its amazing user experience and easy to use system, the Terra network was based on a new consensus algorithm, which allowed for high scalability and reduced the risk of centralization. People were excited about the future of Terra and many of them invested in its native stablecoin cryptocurrency, UST.
Terra was a group of algorithmic stablecoins, named according to the currencies to which they were pegged (for example, TerraUSD (UST) was pegged to the U.S. dollar). Luna served as the primary backing asset for Terra, and was also used as a governance token for users to vote on Terra community proposals. UST stablecoins were not backed by U.S. dollars; instead, it was designed to maintain its peg through a complex model called a "burn and mint equilibrium". This method uses a two-token system, whereby one token is supposed to remain stable (UST) while the other token (LUNA) is meant to absorb volatility.
Beginning on 9 May 2022, the tokens made headlines after some bad actors exploited the system by selling a large amount of tokens in a very short time, so UST began to break its peg to the US dollar. Over the next week, the price of UST plunged to 10 cents, while Luna fell to "virtually zero", down from an all-time high of $119.51. Before the crash, Luna was one of the top ten largest cryptocurrencies on the market. The collapse wiped out almost $45 billion of market capitalisation over the course of a week.
On 13 May, Terraform Labs temporarily halted the Terra blockchain in response to the falling prices of UST and Luna. Despite the company's attempts to stabilise UST and Luna via its bitcoin and other cryptocurrency reserves from the Luna Foundation Guard, the 1:1 peg of UST to USD did not materialise.
On 25 May, a proposal was approved to reissue a new Luna cryptocurrency and to decouple from and abandon the devalued UST stablecoin. The original blockchain is now called Terra Classic, and the original Luna token is called Luna Classic (LUNC).
The new Terra born.
