The Terra ecosystem reactivation plan attracts negativity from the community

The Greatest Story in Crypto – Part 2

Terra CEO Do Kwon has taken to Twitter to announce an ecosystem revival plan based on forking the blockchain, drawing negative attention from the community. The hard fork has become Terra Labs’ main effort to repair the immense damage done to its operations and brand.

On May 16, Do Kwon took to Twitter to announce that “Terra is more than UST” in a long thread outlining plans to fork the Terra blockchain as it currently exists, but without algorithmic stablecoins. The new fork would be called Terra, and its token would be LUNA, and the old chain would be called Terra Classic, and would have the token LUNC. Both chains will coexist.

Last week, the Terra blockchain ecosystem deteriorated in a matter of days. Its native LUNA token, which had over $40 billion in market cap, saw almost all of its value disappear. Meanwhile, UST, which was supposed to be a stablecoin pegged to the US dollar, crashed.

Terra LUNA launched and traded on Binance in August 2020, opening at $0.53 before reaching an all-time high in April 2022 of $119.55. It then lost over 99% of its value in an accident that was compared to the Bitconnect story or the Theranos scam by Elizabeth Holmes.

Classic MOON

The aftermath of the tragic events that have unfolded over the last week have left Terra and its ecosystem in complete disarray. On May 16, Do Kwon took to Twitter to announce that “Terra is more than UST” in a lengthy thread in which he outlines plans to fork the Terra blockchain as it currently exists, but without algorithmic stablecoins.

Proposal Summary

  • Fork the Terra chain into a new chain without the algorithmic stablecoin. The old chain will be called Terra Classic (Luna Classic token – LUNC), and the new chain will be called Terra (Luna token – LUNA)
  • Luna will be airdropped among Luna Classic participants, Luna Classic holders, residual UST holders, and Terra Classic essential app developers.
  • The TFL wallet (terra1dp0taj85ruc299rkdvzp4z5pfg6z6swaed74e6) will be removed from the whitelist for the airdrop, making Terra a wholly community-owned chain.
  • Allocate a large portion of token distribution to 1) providing a fallback avenue for existing Terra dapp developers and 2) aligning developer interest with the long-term success of the ecosystem
  • Network security will be incentivized by token inflation. Target staking rewards of 7% per annum

The new fork would be called Terra, and its token would be LUNA, and the old chain would be called Terra Classic, and would have the token LUNC. Likewise, both chains will co-exist in a move that reminds this writer of the Ethereum Classic debate. The LUNA Foundation Guard has also reportedly spent most of its bitcoin reserves to stabilize UST and restore its parity. At time of writing, UST is trading at $0.09.

The proposal has received mixed responses from the community, with some seeing it as a possible and perhaps only solution, while others are unhappy, pointing to Terra’s lack of transparency and communication as the saga unfolds.

blockchain meetups

Amid the collapse of Terra, other blockchains, including Polygon, Juno, and Fantom, are trying to attract Terra-based dapp projects to their networks. Ryan Wyatt, CEO of Polygon Studios, Polygon’s NFT, gaming, and metaverse arm, tweeted that his team was working closely with Terra projects to help them migrate to the Polygon network.

Other blockchains are trying to attract developers building dapps on Terra. Juno, a smart contract network focused on interoperability, has submitted a new governance proposal asking for the approval of incentives of up to 1 million JUNO, or around $7 million, to support Terra projects that want to move their dapps. The Juno blockchain shares similarities with the Terra technical architecture as they are based on the Cosmos SDK. Similarly, the Fantom blockchain also tweeted that it offers grants, marketing, and ecosystem connections to Terra projects looking for a new blockchain.

The move seems positive as companies seemingly come to the rescue of hard-working affected development teams. However, the most skeptical of us can see the vultures circling and looking to extract the best parts of Terra’s ecosystem and leave behind a rotting carcass. Maybe two rotting corpses if the fork goes ahead and things don’t go as planned.

User error?

The industry has been on a war footing all week; some scream Ponzi, while others scream hoax. However, respected industry commentator and CEO of the FTX exchange Sam Bankman-Fried says that the fall of Ethereum challenger Terra was due to inaccurate marketing rather than outright hoax.

In a series of tweets, Sam Bankman-Fried says that it is unfair to compare the collapse of LUNA and its TerraUSD stablecoin to the collapse of Theranos or BitConnect. He further claimed that Do Kwon did not mislead investors, but admitted that the CEO could have done a much better job of making investors realize that the US dollars did not fully support the UST.

The critical point for Bankman-Fried is that Do Kwon did not claim that UST was backed 1:1 by USD. He claimed, correctly, that a group of volatile crypto assets backed him up. He was

make it clear publicly that those assets could go down, and the rest would follow. In a nutshell, LUNA was a case of hype, emotion, marketing, and memes pushing people to believe in something that would inevitably fail based on publicly available information.

stability remains

Last week, there were fears that other leading US dollar-backed stablecoins would falter as investors became upset and began withdrawing large amounts of capital from stablecoins in the event of a similar situation. Last week we reported that the leading stablecoins had drifted slightly off their BUSB pegs to $0.05, but we see the leaders have regained control of their algorithmic pegs at time of writing.

The debacle reminds hungry investors that things can turn negative just as quickly as they turn positive. Also, it will be interesting to see if Terra or Do Kwon have any plans to make those investors who lost everything whole again. While doubtful, such a move would say a lot about Terra and her commitment to her users. Similarly, Yuga Labs reimbursed failed gas transactions to those who tried and failed to buy land from Otherside NFT a few weeks ago, costing them more than $6 million. Yuga and BAYC’s actions indicate that they want to be around for a long time and not just have a good time. What Terra wants is still unclear.

The foregoing does not constitute investment advice. The information provided here is purely for informational purposes only. Please exercise due diligence and investigate. The writer holds positions in various cryptocurrencies including BTC, ETH, and RADAR.

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