The Terra ecosystem imploded in May 2022, leaving a trail of devastation for investors. In the wake of the collapse, Terraform Labs, led by Do Kwon, proposed a controversial revival plan: Terra 2.0. This new blockchain, launched alongside the original Terra (now rebranded as Terra Classic), aimed to rebuild the ecosystem and compensate affected users. This article delves into the details of Terra 2.0, exploring its purpose, token allocation, community reception, and the challenges it faces.
The price of LUNA crashed dramatically from its all-time high.
Why Terra 2.0? The Genesis of a New Blockchain
The catastrophic de-pegging of TerraUSD (UST) from the US dollar triggered a chain reaction that decimated the Terra ecosystem. The algorithmic stablecoin’s price plummeted, and the interconnected LUNA token spiraled into a death spiral, losing nearly all of its value. The collapse highlighted fundamental flaws in the Terra ecosystem’s design, prompting the need for a radical solution. Do Kwon proposed forking the chain to create a new blockchain, Terra 2.0, free from the instability of UST. The original Terra chain was renamed Terra Classic, with its native token rebranded as LUNA Classic (LUNC). Terra 2.0 launched without an algorithmic stablecoin, aiming to learn from the mistakes of the past and focus on building a more robust and sustainable ecosystem.
Understanding the LUNA Token (LUNA 2.0)
The LUNA token is the native governance token of the Terra 2.0 blockchain. Its distribution was a key point of contention and underwent revisions before the final proposal was accepted. The allocation aimed to compensate users affected by the Terra Classic collapse, while also providing resources for future development.
LUNA Token Allocation: Balancing Compensation and Development
The LUNA token allocation was designed to strike a balance between compensating those who lost funds in the Terra Classic collapse and ensuring sufficient resources for the development of the new ecosystem. The allocation is as follows:
Pre-Attack LUNA Holders (35%): This portion was allocated to holders of LUNA before the de-pegging event, including those who held unbonded, bonded, or derivative forms of LUNA.
Community Pool (30%): This pool, governed by the community, is intended to fund future development and ecosystem growth. 10% is earmarked for developers on Terra, while the remaining 20% is allocated to the broader community pool.
Post-Attack UST Holders (15%): This allocation is for those who held UST after the de-pegging event, acknowledging their losses in the collapse.
Post-Attack LUNA Holders (10%): Holders of LUNA after the de-pegging event received a smaller allocation, recognizing their purchase was made at significantly reduced prices.
Pre-Attack aUST Holders (10%): Holders of Anchor Protocol’s aUST (a yield-bearing version of UST) before the attack also received a portion of the LUNA 2.0 supply.
Allocation of the new LUNA token.
Notably, Terraform Labs, despite holding LUNA and UST, did not receive any airdrop, emphasizing the community-owned nature of the new blockchain. Two snapshots were taken to determine eligibility: a “pre-attack” snapshot on May 7, 2022, and a “post-attack” snapshot on May 27, 2022.
LUNA Token Release Schedule: Managing Token Distribution
The LUNA token release schedule was designed to prevent a sudden influx of tokens into the market and to encourage long-term participation in the ecosystem. The schedule varied depending on the category of recipient:
- Community Pool: Released and utilized through community governance.
- Pre-attack LUNA holders: Vesting periods and cliff durations were implemented based on the amount of LUNA held. Smaller holders received a larger initial unlock, while larger holders faced longer vesting periods.
- Pre-attack aUST holders: Subject to a cap, with a significant portion vested over two years.
- Post-attack LUNA and UST holders: Both groups received a portion upfront, with the remainder vested over two years.
This staggered release aimed to foster a more stable token price and incentivize long-term commitment to the Terra 2.0 ecosystem.
Incentivizing the Terra 2.0 Ecosystem: Attracting Developers and Projects
To rebuild the ecosystem, Terraform Labs implemented several programs to attract developers and projects from Terra Classic and other blockchains:
Emergency Allocation (0.5% of total supply):
This allocation provided immediate funding to support developers building on Terra 2.0, with a commitment to refund the allocation if the product wasn’t launched within a year.
Developer Alignment Program (1.5% of total supply):
Projects from Terra Classic received this allocation based on their Total Value Locked (TVL) before the collapse. This program aimed to incentivize existing projects to migrate to the new chain.
Developer Mining Program (8% of total supply):
Key projects within the ecosystem received rewards based on their TVL, encouraging continued development and ecosystem growth. These projects included essential infrastructure, decentralized exchanges, explorers, payment gateways, wallets, lending markets, and more.
These programs aimed to jumpstart development on Terra 2.0 and recreate a thriving ecosystem.
Community Reception and Challenges: A Rocky Start
The proposal for Terra 2.0 faced significant resistance and skepticism from the community. Do Kwon had to modify the LUNA allocation multiple times to address community concerns. Even after these revisions, major validators, including Orion Money, Hashed, and SmartStake, either abstained or voted against the proposal, indicating a lack of confidence in the revival plan. The controversial nature of the fork, coupled with the significant losses incurred by investors in the Terra Classic collapse, created a challenging environment for the new blockchain.
None of the top 5 validators voted yes as of May 25.
Terra 2.0: Looking Ahead
Terra 2.0 represents an attempt to rebuild after a catastrophic collapse. While the new blockchain has attracted some projects and developers, it faces an uphill battle to regain community trust and achieve widespread adoption. The legacy of Terra Classic continues to cast a long shadow, and the success of Terra 2.0 remains uncertain.
FAQs about Terra 2.0
Which exchanges support Terra 2.0?
Several exchanges, including MEXC, Kraken, BigOne, LBank, Bitrue, Huobi, Bitfinex, FTX, OKX, ByBit, Gate, Kucoin, and Binance, supported the Terra 2.0 airdrop.
Which wallets support Terra 2.0?
Wallets supporting Terra 2.0 include Terra Station, Coin98 Wallet, Leap Wallet, Atomic Wallet, and XDEFI.
How can I receive the airdrop on an exchange?
Exchanges automatically distributed the LUNA airdrop to eligible holders of LUNA Classic and UST. No action was required from users.
Have the snapshots been completed?
Yes, both the pre-attack and post-attack snapshots have been completed.
What are the key differences between Terra 2.0 and Terra Classic?
The primary difference is the absence of an algorithmic stablecoin on Terra 2.0. Terra Classic retains UST, while Terra 2.0 utilizes a new LUNA token and focuses on rebuilding the ecosystem with a different approach.
Is Terra 2.0 a guaranteed success?
The success of Terra 2.0 is not guaranteed. The project faces challenges in regaining community trust and overcoming the negative sentiment associated with the Terra Classic collapse. Its future depends on its ability to attract developers, build compelling applications, and demonstrate long-term sustainability.
