What happened
What a week it's been for Terra (LUNA 0.16%) and its algorithmic stablecoin TerraUSD (UST 1.43%). Trading right at its peg of $1 per token as of May 9 (where it should be), UST is now trading around its all-time low, at just above $0.11 as of 3 p.m. this afternoon. This move represents yet another decline of 3.6% over the past 24 hours for this stablecoin. Additionally, this decline means that UST would need to return roughly 1,000% to just get back to its peg from this level, making these daily moves seem irrelevant in the bigger picture.
CRYPTO: UST
Key Data Points
CRYPTO: LUNA
Key Data Points
This sort of price action means many a eulogy is being written about the TerraUSD stablecoin. It's probably too far off its peg to be saved, and this is now being priced into the token.
Image source: Getty Images.
However, where Terra and its ecosystem of existing applications goes from here is a big question many investors have right now. Do Kwon, Terra's founder, and Terraform Labs, the company behind Terra, have made a big announcement about an upcoming fork, which would lead to the launch of a new chain, without the algorithmic stablecoin, on May 27.
So what
Terraform Labs is set to put a proposal up for a governance vote tomorrow, May 18, during Asian trading hours. This proposal provides a way to preserve the Terra ecosystem and blockchain, by forking the chain and getting rid of the UST stablecoin altogether. Should the proposal pass, it's expected that the new LUNA network will launch on May 27.
The plan is to name the "old chain" Terra Classic, with the token LUNC. The new chain will retain the Terra name, as well as the ticker LUNA. According to the initial white paper released by Terraform Labs (and subject to change), the plan is to distribute 1 billion new LUNA tokens.
Interestingly, the incentives of this new chain are aimed mainly at developers, with a significant percentage of the distribution of airdropped tokens aimed at attracting developer interest and providing support to existing Terra dApp developers. For those holding LUNA tokens as they are right now, it appears some value will be airdropped as well, though certainly not enough for many current investors to get excited right now.
Now what
Most investors in LUNA, and UST for that matter, have been completely (or nearly) wiped out. Accordingly, any trust that did exist in Terra's algorithmic stabilization model is all but gone.
Do Kwon and the Terraform Labs team behind this project have made a number of proposals to revive the Terra blockchain in different forms. This latest proposal is one the community doesn't seem to be behind. Much of this anger has to do with the prioritization of whales over the "little guys" who lost everything investing in Terra. It's not a community without your devoted followers, after all.
I have no idea where Terra goes from here. I think it's unlikely we'll see any meaningful investor interest in this newest iteration of Terra. And while developers might still look to stay aboard given these incentives, it's unclear if this blockchain will see the activity needed to move ahead, given a lack of investor interest.
At these levels, perhaps speculators will start stepping in, betting that a rebranding and fresh start could propel Terra forward. But I think most investors now view this project as unworthy of their money, given the previous catastrophic failure of Terra v1.
