A glimpse into the current status of LUNA2.0 and Terra ecosystem: collapse or revival?

Original author: Kadeem Clarke
Original translation: TechFlow
Introduction
Last year’s collapse of Luna and UST, Do Kwon’s legal issues, and the decline of the Terra ecosystem are all still fresh in people’s memory.
But after the negative events, many things did not completely die. The voices of reconstruction and speculation intertwined with each other, so we saw the activity of LUNA Classic or LUNA 2.0.
How is the Terra ecosystem doing these days? Are there still areas worth paying attention to?
With these questions in mind, M 6 Labs reviewed the current Luna 2.0, Terra ecosystem, partnerships, and technological progress, and presented us with their current status.
The last UST crash resulted in a blockchain split, also known as a hard fork, creating a new blockchain and token that now operates independently.
LUNA or LUNA 2.0 represents the new LUNA token created as a result of the fork, the original LUNA token is now known as LUNA Classic or LUNC. More than 65% of holders support the revival of the Terra platform after its launch.
Terra is a blockchain project created by Terraform Labs and is the basis for numerous stablecoins and decentralized applications. Terra Dollar, or Terra $UST, uses an algorithm to peg it to the U.S. dollar.
Terra UST is an algorithmic stablecoin designed to reduce the volatility inherent in cryptocurrencies like Bitcoin. Previous versions of the Terra protocol have been extended to allow stablecoin developers to create Terra DeFi projects.
Terra and LUNA are two cryptocurrencies used in the project. Terra is a stablecoin standard that is linked to fiat and other currencies. For example, TerraUSD (UST) is pegged to the US dollar, while TerraKRW (KRT) is pegged to the Korean won.
The network's staking and governance asset is the native token LUNA. Users stake LUNA to gain governance rights, become validators, and earn rewards. Users can also use LUNA to create Terra's UST token or tokens pegged to its native currency.
However, it is important to note that although these stablecoins are linked to fiat currencies, they are not backed by fiat currencies. The LUNA token is considered an algorithmic stablecoin.
Algorithmic stablecoins are digital assets whose value comes from a set of rules rather than being tied to a physical asset. This approach allows Terra users to invest in the price of these pegged tokens without having to hold them in physical form.
Manager 2.0
Luna 2.0 is the latest version of Terra (LUNA) with the goal of proposing a fork and airdrop of the Terra blockchain. The main goal of the new project in the Terra ecosystem is to restore trust in this stablecoin.
history
Terra Luna was launched on the Cosmos blockchain in April 2019. The initial offering price was $0.19, and the price fluctuated between $0.19 and $0.30 in the first few months. Do Kwon, founder and CEO of its parent company TerraformLabs, has been working on the development of the ecosystem since January 2018 with co-founder Daniel Shin.
In 2019, Kwon discussed the origins of his blockchain on CNBC, with the central idea being that digital assets can only increase in value if they innovate and create value for users.
How does Terra 2.0 work?
Terra 2.0 is an update to Terra Classic.
Although Terraform Labs and Do Kwon will not be part of Terra 2.0, the company behind Luna and Terra has a “robust revitalization plan” that effectively saves the entire Terra Classic ecosystem by creating a new Terra. This is the first plan to be given the Terra 2.0 badge.
While there are strong indications that Terra 2.0 will not suffer the same fate as its predecessor, cryptocurrency exchanges and tech entrepreneurs are divided over the feasibility of supporting the Terra 2.0 blockchain.
Do Kwon and Terraform Labs’ original plan focused on validating every invalid block and blockchain network transaction, allowing the new LUNA token and Terra 2.0 to flourish? The plan will be implemented via a hard fork, meaning Terra 2.0 will not be directly associated with LUNA Classic but will remain on the same blockchain.
Do Kwon's proposal was considered, but more support is needed. Terra 2.0 is not based on the original Terra blockchain, but on a completely new blockchain, the new Terra. LUNA Classic has replaced the original LUNA token.
What is the consensus mechanism of Terra 2.0 (LUNA 2.0)?
The Terra 2.0 cryptocurrency blockchain uses a standard Proof of Stake consensus algorithm to validate transactions. At any given time, there are 130 validators participating in the network consensus, with voting power determined by the amount of LUNA 2.0 bonded to a node. Grants are rewarded with gas fees and a fixed annual LUNA 2.0 inflation rate of 7%.
LUNA 2.0 token holders contribute to consensus by delegating their tokens to validators. Validators typically stake their own money along with delegates. In this system, validators keep commissions and then distribute rewards to delegators.
What makes LUNA unique?
The following factors make LUNA an attractive crypto asset:
Fast cross-border payments:
The Terra stablecoin allows seamless cross-border exchange at minimal cost around the world. Terra has an average block time of six seconds, enabling fast transactions around the world.
Low Transaction Fees:
Transaction fees on the Terra blockchain are among the lowest among cryptocurrencies.
Interoperability:
Terra runs on Terra Bridge, a cross-chain system that makes Terra tokens interoperable. Terra tokens can be transferred between Binance Smart Chain and Ethereum, and work is underway to support cross-Solana transactions. Terra also runs CHAI payment software, allowing Terra’s users to seamlessly complete payments on its blockchain.
Automated Liquidity Pools:
After depositing, the tokens are automatically staked on its protocol, saving users time and effort in finding liquidity pools. You can easily use Terra tokens in many applications built on its protocol.
What is the difference between LUNA 2.0 and LUNA Classic?
Although they have significant similarities, LUNA Classic and LUNA 2.0 are different. Under the new governance plan, the Terra network has been split into two chains. The old chain will be Terra Classic with the Luna Classic token (LUNC), while Terra with the LUNA token will be a new chain called LUNA 2.0.
Instead of being completely replaced, the old LUNA will coexist with LUNA 2.0. Any Terra Luna DApps will prioritize LUNA 2.0, and the development community will begin building DApps and providing utility for the new token. However, it will not include algorithmic stablecoins.
Terra Classic will retain its community as many investors and traders are against Do Kwon's recovery plan and new chain. Terra Classic still has a large fan base. The Classic community has agreed to burn as many LUNC tokens as possible to reduce the currency supply and increase individual token prices.
What happens to the old Terra blockchain?
TerraUSD and LUNA Classic are both native tokens of the old Terra network. The goal of this blockchain platform is to provide a peer-to-peer electronic cash system. UST and LUNA are two of the tokens available on this blockchain.
Since UST is a stablecoin, it can be directly pegged to the US dollar. This means that UST is expected to maintain a value close to $1. The LUNA token is essential to ensure that UST maintains its peg. The peg is maintained using a standard contract-based algorithm. By destroying LUNA tokens, UST is kept at or close to $1. This allows for the creation of new tokens.
Users on the original Terra platform had to exchange LUNA tokens for UST and then exchange UST for LUNA. These trades were conducted at a guaranteed price of $1, even if the market price of one token was different from the other at the time of the transaction. Eventually, TerraUSD was unable to maintain its peg to the dollar, causing its value to plummet. However, the exact reason for the devaluation of this stablecoin has not yet been discovered.
When this happened, the algorithm that powered the entire platform attempted to correct the problem by issuing far more LUNA tokens than usual. In fact, the total LUNA supply increased by a lot, from over 700 million tokens around May 5, 2022 to 7 trillion tokens just eight days later. As a result, LUNA lost 99.9% of its total value. By introducing trillions of new coins into the market, the value of a single coin eventually dropped to a fraction of a cent.
The old LUNA tokens have been rebranded as LUNA Classic and listed under the LUNC ticker since they are essentially worthless. The old Terra blockchain, on the other hand, will effectively cease to exist. The UST stablecoin is the only aspect of the Terra blockchain that will be completely removed. Even though new LUNA coins will be issued, the stablecoin will not be issued.
Terra Ecosystem
The Terra ecosystem has a strong focus on DeFi applications, which has given rise to Terra Finance (TeFi). The sheer number of native projects built on Terra and their ability to attract significant capital at an early stage demonstrates the quality of the ecosystem.
Astroport Protocol
Similar to the Uniswap/Curve relationship, the Astroport protocol aims to be the core DEX or automated market maker for the Terra ecosystem, facilitating the exchange of all assets on Terra. Within 7 days of its launch, 23,379 unique wallet addresses deposited more than $1.2 billion into the protocol. In addition, Astroport's unique token distribution and economic long-term staking design will also protect the protocol from any rapid outflows in the short term.
It is one of LUNA’s most important dApps with a total locked value (TVL) of $13.93 million.
1.TerraSwap
TerraSwap is the first AMM protocol on Terra, similar to Uniswap. The main difference is that TerraSwap does not allow users to list tokens or create pools freely.
In short, TerraSwap allows users to swap tokens on the Terra blockchain and create liquidity pairs. These liquidity pairs, called pools, provide users with liquidity to swap blockchain tokens. Pools track the balances of both assets to ensure that there is always a certain amount of tokens available for trading. Users who provide liquidity are rewarded with LP tokens.
TerraSwap is the original TerraSwap protocol.
2.Prism Protocol
Prism Protocol is one of Terra's most unique protocols. It enables users to split yield-generating assets into two different parts: a yield part and a principal part, thereby creating a new asset class. Users can maximize their price or yield exposure while avoiding liquidation risk.
Because PRISM tokens are the underlying asset in all liquidity pools, users must hold PRISM and other assets to provide liquidity. Users who want to participate in governance can stake their PRISM to obtain xPRISM and receive a portion of the protocol fees.
Prism only supports the refraction of Terra's native token LUNA into pLUNA and yLUNA. PRISM intends to refraction more tokens from Layer 1s to high APY pools in the future and allow the selection of multiple maturity yields to guarantee the income obtained. Users can also use Telegram to place limit orders for token swaps and receive alerts when the order is filled.
3.Risk Harbor
Risk Harbor is a DeFi risk management marketplace that protects liquidity providers and stakers from smart contract hacks and attacks using an automated, transparent, and fair claims process.
Risk Harbor’s core belief is that every crypto asset should be protected without the need for trusted intermediaries, enabling a truly permissionless, open financial system that works for everyone.
Unlike other decentralized protection policies, Risk Harbor adopts a parametric protection pedagogy. Its algorithmic, transparent and unbiased solution eliminates the need for oracles and third-party institutions while providing near-instant payments.
Individual users can purchase the parametric protection they need through Risk Harbor. Underwriters create risk management pools using predefined parameters, and buyers select the pool they want to invest in. The total premium is paid upfront, and the amount is added to the corresponding underwriter's pool in proportion.
4.Spectrum Protocol
Spectrum Protocol is a decentralized yield optimization platform that enables users to earn compound interest on their liquidity mining.
Spectrum Protocol automatically maximizes returns on various liquidity pools and other yield products in the Terra ecosystem by using smart contracts to protect and manage various investment strategies.
Spectrum Protocol's main product is Vaults, where you can provide liquidity or stake your crypto tokens (SPEC, MIR, ANC, mAssets, etc.). Users can choose an auto-stacking investment strategy, where the vault automatically increases the number of deposited tokens by returning rewards to the originally deposited LPs, or an auto-staking strategy, where the vault automatically stakes rewards to the corresponding governance stake to further increase the number of rewards.
5.Mars Protocol
The Terra Luna debacle wiped out $60 billion from the cryptocurrency market. Platforms like Mars Protocol resurfaced, while others like Pylon Protocol faded away.
Mars is one of Terra Luna’s main lenders.
Mars Protocol’s new plans include launching a separate Cosmos application chain on January 31. Its new features will make it easier for blockchains in other Cosmos ecosystems to lend and borrow.
Partnerships
The project has many past and present partners. These partnerships are strategically valuable from a purely research perspective. Allina Health, The McKnight Foundation, AmeriCorps, Omaha Public Schools, and Washington Nationals are just a few examples. The project has over 300,000 Twitter followers and a solid social media presence.
As the total size of DeFi grows, the utility of DeFi stablecoins will increase. LUNA has a good total utilization rate, which keeps them stable.
Additionally, Terra is focused on decentralized finance and will need much greater user adoption to pose a real challenge to the dominant blockchains.
Alliance: Harnessing the power of incentive alignment
Following an overwhelming vote to approve Proposal 4717, the LUNAtic community has successfully integrated the Alliance module into the Terra mainnet, opening up a range of possibilities for growth and cross-chain collaboration.
Alliance represents a paradigm shift in scaling the decentralized economy.
Notably, chains such as Migaloo and Kujira have decided to integrate it.
The ability to achieve large-scale coordination among different actors through economic incentives is an exciting feature emerging from the Internet’s transition from Web2 to Web3. Alliance is an open-source Cosmos SDK module that expands on this concept by allowing blockchains to align incentives with neighboring chains, developers, and users to strengthen and scale their ecosystems.
The core purpose of Alliance is to serve as an economic tool to guide the monetary policy of the decentralized economy (i.e. staking rewards) towards a desired goal. This is achieved by allowing users to stake multiple tokens on a single chain to earn a portion of the native staking rewards - something that was not previously available in Web3.
Alliance is a tool that can dynamically adapt as the needs of the ecosystem change. It can convert any token into Alliance assets and adjust its reward weights and yields through chain governance. Both users and decentralized economies can use Alliance to:
Diversify and increase staking returns - By increasing yields above 0%, new, low-liquidity chains can supplement their native staking returns with uncorrelated, less volatile, and more liquid Alliance assets. Larger, more established chains can diversify their native staking returns by including external tokens as Alliance assets and setting yields above 0%. Users can diversify and increase their rewards by staking on one chain, bridging their LSD to another chain and staking there, earning a second yield in the form of that chain’s native token.
Attract users, liquidity, and developers - By allocating low yields to Alliance assets, chains of any size can attract new users and liquidity from bridging and staking within their ecosystem. Staking creates a positive feedback loop: higher usage leads to higher liquidity, which in turn drives more developers to create dApps, further increasing usage and liquidity, and so on.
Incentivize application developers - Alliance can provide L1 staking income to application token stakers in the ecosystem, so that users of the most promising applications can directly receive rewards from L1 fees and inflation. The community can also use Alliance to fund the development of key ecosystem applications (such as DEX, money markets, NFT markets, etc.) or new DeFi primitives.
Deepen liquidity of base token pairs - Chains can increase liquidity of desired token pairs by listing LP tokens as Alliance assets and assigning reward weights greater than 0%.
in conclusion
Considering the collapse of its UST stablecoin, the future of LUNA 2.0 cannot be completely determined. Previously, LUNA was home to some very popular DeFi projects, but now few people mention it.
Terra’s new blockchain has struggled to gain sufficient market share due to a mass exodus of investors, developers, and community members, many of whom were hit hard by the collapse of the original Terra ecosystem last May.
Even if the new blockchain does not include algorithmic stablecoins and does not cause the collapse of the old ecosystem as the unlocking did, trust in the Terra project seems to have been irreversibly damaged, with many predicting that LUNA will eventually fall to zero. However, the future is often not entirely predictable based on past events. Whether Terra LUNA 2.0 can succeed depends on whether the new chain performs well enough to regain investor trust.