What is Terra Classic (LUNC)?

What is Terra Classic?

Terra Classic originated as Terra (LUNA), a blockchain protocol initiated in January 2018 with the mainnet launching in April 2019. Terra aimed to use fiat-pegged stablecoins for facilitating a globally price-stable payments system. According to its white paper, the project sought to blend the censorship resistance of Bitcoin (BTC) with the price stability and broad adoption of fiat currencies. It even offered various stablecoins tied to the U.S. dollar, South Korean won, Mongolian tugrik, and the International Monetary Fund's Special Drawing Rights basket of currencies.

However, in May 2022, a critical turning point occurred. The U.S. dollar-pegged stablecoin UST collapsed, leading to a crisis within the Terra ecosystem. Drawing parallels to Ethereum's DAO hack in 2017, CEO Do Kwon likened this collapse to a moment that demanded reevaluation and evolution. As a result, the genesis block of a new chain under the name Terra (LUNA) was launched, and the original Terra Chain was renamed Terra Classic. In this transformation, all native tokens and stablecoins also underwent rebranding. The original LUNA token became LUNA Classic (LUNC), and stablecoins like UST, KRT, and EUT were renamed as USTC, KRTC, and EUTC, respectively.

The term "Classic" in Terra Classic may be a nod to the Ethereum/Ethereum Classic split, which was another defining moment in the cryptocurrency space. Much like how Ethereum Classic carried forward the original Ethereum chain, Terra Classic has been adopted and maintained by a community of devoted supporters, serving as a testament to the resilience and adaptability inherent in decentralized systems.

Resources

Official Document: https://docs.terra.money/

Official Website: https://www.terra.money/

How Does Terra Classic Work?

In the Terra Classic ecosystem, LUNC serves as the backup token for the newly rebranded USTC stablecoin. This relationship means that any appreciation in the value of LUNC could potentially help USTC regain its peg to the U.S. dollar. A crucial development in the Terra Classic ecosystem has been the introduction of the 1.2% tax burn proposal by a group known as the Terra Rebels, who are committed to the revival of LUNC. This proposal aims to eliminate 1.2% of each LUNC transaction from the circulating supply, thereby creating a deflationary pressure on the token.

Interestingly, this tax is not applied to swapping activities between USTC and LUNC, allowing for greater fluidity and ease in trading these assets. This new mechanism has gained considerable traction and has been integrated by several centralized exchanges (CEXs).

This tax burn strategy not only serves to decrease the circulating supply of LUNC but also plays a role in stabilizing the USTC stablecoin. By influencing the demand and supply mechanics, it is designed to help USTC attain and maintain its intended peg. The effort illustrates how Terra Classic is continually innovating its mechanisms to ensure stability, backed by a community-driven approach.

What is Terra Classic Token (LUNC)?

LUNC, also known as Luna Classic, is the residual token from the original Terra Luna project, which was rebranded following the collapse of the UST/Luna ecosystem and the initiation of a new Terra chain. Functioning as an ERC-20 token, LUNC has a circulating supply of 5.8 trillion tokens.

The Terra Crash

The Luna-Terra ecosystem, once a shining star in the crypto universe, experienced a catastrophic collapse that has been likened to the infamous Mt. Gox debacle of 2014. At its peak, the native asset of the Terra blockchain, LUNA, was trading at $116, but in a shocking turn of events, it plummeted to under $1 a token, erasing $40 billion in value. The failure of Terra's algorithmic stablecoin, UST, triggered a "death spiral" that led to the LUNA token losing 99% of its value. The stablecoin, which was supposed to be pegged to the U.S. dollar, fell to mere cents, causing a loss of confidence among investors and leading to a mass sell-off.

The core issue that led to Terra's downfall was its lack of transparency and the inherent flaws in its algorithmic stablecoin, UST. According to experts, the project aimed to create a stablecoin infrastructure robust enough to rival Ethereum's dApp ecosystem and compete directly with fiat currencies. However, the algorithmic model of UST was under-collateralized, making it vulnerable to market pressures. The tipping point came when about $2 billion worth of UST was unstaked from the Anchor Protocol and sold off, pushing the price of UST down to $0.91. This was compounded by a broader market crash, leading to a de-pegging of UST from its $1 value. The total value of UST could not be redeemed against the rapidly falling LUNA, causing a loss of faith in both assets.

The disaster has sparked a renewed focus on the need for more robust systems and has caught the attention of policymakers and regulators who are now more motivated to bring stability and consumer protection to the crypto market. Many believe that the collapse of Terra serves as a cautionary tale for the crypto industry, emphasizing the need for transparency, over-collateralization, and robust economic models to withstand extreme market conditions.

The Luna-Terra crash serves as a stark reminder of the risks involved in the crypto space, especially with algorithmic stablecoins. It has prompted industry leaders to vow to learn from its failures, but the event will likely have long-lasting implications, not just for Terra and its investors, but for the broader crypto industry as well.

Conclusion

In conclusion, Terra Classic is a rebranded version of Terra (LUNA), born out of a crisis that collapsed its original stablecoin, UST. With new features like a 1.2% tax burn, it aims for a fresh start and greater stability. The crash serves as a cautionary tale for the crypto industry, highlighting the importance of robust economic models and transparency. Despite past challenges, Terra Classic embodies the resilience and adaptability of decentralized systems.

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