American author Mark Twain is sometimes misquoted as saying, "The reports of my death are greatly exaggerated." His actual statement was a little different, but the sentiment of the misquote is correct.
Twain came to mind recently with the collapse of Terra (LUNC -1.40%). Some were ready to write the obituary for the beaten-down cryptocurrency. However, the story isn't over just yet. Could Terra actually be worth buying right now?
A near-death experience
As was the case with Twain more than 120 years ago, the reports of Terra's death were exaggerated. However, it's certainly fair to say that the digital token had a near-death experience.
The problems started when stablecoin TerraUSD (USTC 1.26%) lost its peg to the U.S. dollar earlier this month. Unlike some stablecoins, TerraUSD doesn't have cash reserves backing it. Instead, an algorithm attempts to keep TerraUSD's price steady by minting LUNA tokens.
That algorithmic process went haywire as panic selling of both cryptocurrencies ensued. Within a short period of time, LUNA's price had plunged to as low as $0.0001023. To put that into context, the token's price at the beginning of May stood at more than $78.
Rising from the ashes
However, Terra just might be rising from the ashes. The token surged on Wednesday after members of the Terra community voted to move forward with a proposed rescue plan.
This plan involves the creation of a new Terra blockchain that supports a new version of the LUNA token. The old blockchain is being rebranded as Terra Classic. The old LUNA token is being renamed as Luna Classic with ticker LUNC.
What happens with TerraUSD? It's not part of the new Terra blockchain at all. Instead, the stablecoin has been left behind with the old Terra Classic blockchain.
These changes were expected to go into effect on May 28. However, it's still possible that more actions could be taken. For example, another proposal put before the Terra community included a recommendation to use a burn mechanism to reduce the supply of UST tokens to alleviate some of the pressure on what's now Luna Classic.
To the moon?
Terra holders will once again be able to take up the cry "to the moon" again, right? Not so fast.
It seems unlikely that Luna Classic will attract a lot of new investors while questions remain about its link to TerraUSD. There's no guarantee that the stablecoin will be able to regain its peg to the U.S. dollar going forward.
As for the new LUNA token, the jury is also still out. Many investors will understandably be skeptical about the new approach. After all, one of the biggest attractions for LUNA in the past was its connection with the TerraUSD stablecoin.
There are plenty of other cryptocurrencies available on the market that don't have the dark cloud hanging over them that Terra does. These alternatives will probably be more appealing to investors, at least in the near term.
Some might choose to roll the dice on buying the new LUNA tokens. Maybe it will pay off. However, at this point, the risks are huge.