Second Terra Ecosystem Revival Plan Proposes “Luna Classic” Hard Fork

Key Insights:

• Do Kwon has proposed a hard fork to split the existing blockchain.
• The old chain will be called ‘Terra Classic’ with the ‘Luna Classic’ token.
• A billion new Luna tokens will be airdropped to stakers and developers if approved.

On May 17, the founder of the troubled Terra Luna network, Do Kwon, announced his latest plans to revive the beleaguered blockchain. He kicked it off by declaring that Terra is more than just UST – the dollar-pegged stablecoin which collapsed last week.

His first proposal, which involved redistributing LUNA tokens and abandoning the UST stablecoin, was hotly debated and contested by many. This has led to a second proposal also involving forking or splitting the existing blockchain, but with a few differences.

1/ Terra is more than $UST

— Do Kwon 🌕 (@stablekwon) May 16, 2022

Forking a New Future

Terraform Labs will put forth a new governance proposal on May 18 to fork the existing blockchain. It involves creating a new chain from the fork without the algorithmic stablecoin. The old chain would be called Terra Classic with the token Luna Classic (LUNC), and the new chain is to be called Terra with the LUNA token.

The new LUNA tokens will be airdropped to Luna Classic stakers holders, residual UST holders, and developers of the previous incarnation of the Terra network.

A large portion of the token distribution will be allocated to “providing an emergency runway for existing Terra dapp developers” and “aligning the interest of developers with the long-term success of the ecosystem.”

One billion new Luna tokens will be created and distributed, with a quarter going to the community pool controlled by staked governance and another quarter to UST holders at a snapshot taken at launch on May 27.

35% will be distributed to LUNA stakers using a “pre-attack” snapshot from just before the system collapsed on May 7, and 10% will go to LUNA holders. The rest will be split between ecosystem developers.

Do Kwon admitted that competing interests made it difficult to agree on a way forward. Competing interests from varied stakeholders such as LUNA and UST holders, and Terra builders, make it “extremely difficult and unlikely to achieve consensus on a cohesive, congruent plan,” he stated before adding:

“It would be devastating for broader crypto adoption and advancement if we remain in entropy amidst opposing views,”

The existing ecosystem is built on a principle of supply and demand whereby LUNA is minted and destroyed to redeem UST. This works well when there is demand and prices are increasing, but a massive liquidation from DeFi protocols offering huge returns on stablecoin staking resulted in the eventual downfall of the system.

UST and LUNA Price Updates

LUNA, which was trading at over $65 last week, is currently next to worthless at around $0.00019. The dollar-pegged UST stablecoin, once the world’s third-largest with a market capitalization of $18 billion, has collapsed to $0.11.

Terra’s $3.5 billion Bitcoin treasury was moved to exchanges last week, as reported by FXEmpire. Meanwhile, global bankers, regulators, and politicians have had an early Christmas with this fiasco as it has given them the perfect excuse to clamp down on the crypto industry and impose tighter controls.