In brief
- UST and LUNA collapsed last week.
- Terra users will soon vote on whether to fork the blockchain.
Terra Network co-creator Do Kwon is trying to revive the fallen blockchain after its UST stablecoin de-pegged from the dollar and the LUNA governance token went from nearly $100 to fractions of a penny in a week.
His most recent proposal—after Terra users debated his previous plan to redistribute tokens and abandon UST stablecoin—is to split the blockchain into two in a similar manner to Ethereum’s fork from Ethereum Classic.
The proposal, made today and titled “Terra Ecosystem Revival Plan 2,” allows blockchain purists to keep the current, collapsed blockchain, which will henceforth be called “Terra Classic.” The token will be Luna Classic (LUNC).
The new chain will airdrop 1 billion Luna tokens between developers, UST holders, and those who held or staked Luna or its derivative projects before the price of the stablecoin de-pegged. The redistribution will include vesting schedules and token lockups for most of the LUNA, ostensibly to avoid a steep price decline as Terra determines how to move forward without UST at its center.
Kwon’s latest proposal shares elements of the first plan, proposed on Friday, May 13. Most notably, there’s no UST stablecoin. Said Kwon: “Terra is more than $UST.”
In a tweet thread, Kwon shared that the plan came about due to “competing interests from varied stakeholders.” With no consensus to be had, developers and UST and LUNA holders can now choose to start fresh or stick with the collapsed chain, which remains paused as the community decides how to move forward.
UST stablecoin is an undercollateralized asset that’s supposed to keep parity with the U.S. dollar through a relationship with LUNA, Terra’s governance token. The price of the former is kept in check via a token-destruction method and arbitrage. If the price of UST falls below $1, traders can buy it up and swap it for a dollar’s worth of LUNA.
2/ It has been inspiring to partake in the dynamic discourse regarding the best next steps for Terra. Taking feedback from the community and thoughtful proposals, I would like to suggest the following for the path forward.https://t.co/E13VI8bkLh
A thread on our reasoning:
— Do Kwon 🌕 (@stablekwon) May 16, 2022
That system worked while LUNA’s price was mostly going up, making it a valuable asset to hold, but after a Terra lending protocol called Anchor began lowering interest rates from a spectacularly high 20%, there was less of a value proposition for LUNA. Traders cashed out and fled, propelling both UST and LUNA into a death spiral.
Kwon’s proposal to rewind the blockchain before a bad event is reminiscent of the Ethereum community’s split into two after a smart contract hack on “The DAO” in 2016.
The DAO—the initial decentralized autonomous organization—was a venture capital fund built on the Ethereum network. People could trade their ETH for DAO tokens, then use those tokens, akin to shares for voting rights in a company, to invest in Ethereum projects. The DAO raised over $150 million dollars in Ethereum, which was a considerable chunk of ETH’s market cap at the time.
But the code for The DAO’s smart contract had a flaw, resulting in a massive theft of investor’s funds. Community members debated what to do, ultimately landing on a fork of the blockchain that would split it into two from a point directly before the hack. A majority of users ultimately fell in line with the new camp, led by Ethereum creator Vitalik Buterin, which retained the Ethereum name. Others, many of whom argued that a blockchain should be immutable, stuck with the current chain, redubbed Ethereum Classic.
Similarly, Kwon tweeted, “Both chains will coexist.”
Terra community members have until May 18 to decide on Kwon’s proposal, which would occur on May 27.
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