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LUNA became quite popular in 2022 with new developments on its blockchain before crashing down after its Terra stablecoin depegged, crashing to zero and equally dragging down the price of LUNA.
This crash resulted in a blockchain split, also known as a hard fork, which created a new blockchain and token that operate independently from the former today.
While LUNA or LUNA 2.0 represents the newly generated LUNA tokens after the fork, the original LUNA coins are now known as LUNA Classic or LUNC.
Before now, old LUNA tokens, now called LUNC, were the native coin of Terra, a blockchain technology developed by Terraform Labs, a Korean firm, in 2019.
Terra is a layer one blockchain protocol whose native coin LUNA was used as a protocol token to lower the volatility of the blockchain's stablecoins and make payments on the blockchain.
Today, LUNA refers to the newly issued tokens of the Terra 2.0 blockchain.
Terra, or UST, was a stablecoin token of the Terra blockchain, whose duty was to maintain its stability through an elastic money supply for the network. The token's revenues were used to reward investors and upgrade its blockchain.
It is important to note that TerraUSD was not pegged to the US dollar; instead, smart contract algorithms determined its price using the LUNA token.
In 2021, Terra activated a series of Colombus-5 main net upgrades to its system, which caused a spike in LUNA. Initially, LUNA was $1.31, but after the upgrade, it rose to an ATH of $49.95 and ended the year at $103.33.
The Colombus-5 update was to facilitate the movement of Terra stablecoins across blockchains faster and quicker. Terra achieved this by integrating with Cosmos, a network of multiple blockchains.
The update ensured that burned LUNA tokens would remain permanently burned and unusable, reducing the number of tokens in circulation and increasing their value.
Terra’s blockchain technology was built on Cosmos SDK, an open-source framework for building multi-asset public Proof-of-Stake (PoS) blockchains. It has validators who mint and verify transactions on its blockchain for rewards.
The top 130 active validators with the most LUNA tokens are selected to secure the network. Validators and stakers on the blockchain can also participate in the network consensus. However, their voting powers are proportional to their stake in the blockchain.
Terra users can access the blockchain network directly with its native wallet, Terra Station. With the wallet, users can easily interact with Terra-based decentralised applications (dApps), swap tokens, and manage their funds.
LUNA is a governance token for staking and acts as collateral (an asset that stablecoins on the blockchain are pegged to). By staking their LUNA token, validators earn rewards and contribute to the network’s protocol.
For validators to mine LUNA, they must first stake their tokens on the blockchain. Validators with more LUNA tokens have a higher chance of generating the next Terra block and earning a token.
The following are factors that make LUNA an interesting crypto asset;
Criticisms of LUNA
LUNA has often been praised for its features while simultaneously coming under fire for several reasons. Some of the issues include:
With the recent changes in Terra, it has a long way to go if it will ever catch up with leading DeFi chains like Ethereum.
The major problem that led to the fall of terra (UST) and LUNA was that they weren’t tied to a stable asset like gold or even the U.S. dollar but were pegged to a coin as volatile as any other crypto, LUNA.
All seemed fine for the “lunatics”, as the community calls itself, until the crypto market had an extended bearish season and a global recession in early 2022 that crushed most coins, including LUNA.
To manage the situation, Terra’s founder, Do Kwon, proposed creating a hard fork (blockchain split) in the network to permanently de-peg LUNA from UST. After most of the Terra community voted in favour of this, LUNA 2.0 was born.
LUNA or LUNA 2.0 became the name of the new Terra token released on May 27, 2022, while Terra's original LUNA tokens were named Terra Classic (LUNC).
Today, both coexist since it is a community-governed blockchain, and some investors and developers choose to still build on the Terra Classic network.
To compensate the affected members, LUNC holders were given airdrops of LUNA 2.0 or LUNA tokens in the following proportion;
Pre-attack LUNA holders receive 35%,
Post-attack LUNA holders receive 10%,
Pre-attack aUST holders receive 10%,
Post-attack UST holders receive 15%,
The Community Pool receives 30% (with 10% for developers) and is controlled by stakeholder governance.
The quantity of Terra Classic tokens determined this sharing formula and the time one held the token (based on pre-attack and post-attack reports).
To ensure sustainable tokenomics, LUNA 2.0’s total supply of 1 billion won’t be all at once at launch released gradually.
As of March 13, 2023, the price for LUNA is $1.39, with a market cap of $322,078,583 and a total circulating supply of 232,492,206 LUNA tokens.
On the other hand, Terra Classic's (LUNC) price is $0.0001308, with a market capitalisation of $771,640,545 and a circulating supply of 5,894,198,334,080 LUNC tokens.
Terra is a decentralised, permissionless, and programmable payment network with a new native token, LUNA or LUNA 2.0.
The protocol allows online merchants and their customers to make low-cost payments and transactions. Terra's open network is also well-suited to decentralised applications, resulting in a thriving ecosystem around the protocol.
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