Terra supporters have approved a plan to resurrect the failed cryptocurrency venture — but without the contentious stablecoin that contributed to its shocking demise two weeks ago.
With massive support, the Terra ecosystem has voted to permit Proposal 1623, calling for the genesis of a new blockchain and the conservation of our community, Terra’s official Twitter account stated on Wednesday.
The proposal would result in the creation of a new blockchain — a shared ledger of transactions — and its associated luna token, which is now worthless due to a mass exodus of investors in the crypto equivalent of a bank run.
TerraUSD, a so-called stablecoin, fell below its intended $1 peg earlier this month. This sparked a panic in the cryptocurrency market, with investors fleeing its sister token, luna.
TerraUSD, or UST, is an “algorithmic” stablecoin. It was designed to keep its dollar value by creating and destroying UST and luna, which would, in theory, help balance supply and demand.
This is in contrast to how many major stablecoins, such as tether and USDC, are intended to operate — that is, with actual fiat currency held in reserve to support the dollar peg in the event clients withdraw their funds.
Luna and UST had a combined market value of nearly $60 billion at their peak.
Skeptics abound
Terra intends to distribute tokens to holders of the old luna — soon to be renamed “luna classic” — and UST tokens under the new proposal.
A pool of Terra community investors will receive approximately 30% of the tokens; 35% will go to those who held Luna before its collapse, and 10% will go to pre-collapse UST holders. A further 25% of tokens will be distributed to traders who still own luna and UST following the crash.
According to CoinGecko data, the price of Luna increased by more than 20% on Wednesday. UST was up more than 50%.
Many market observers are still skeptical of Terra’s revival strategy.
There has been a massive loss of trust in the Terra project overall, said Vijay Ayyar, head of international at the Luno cryptocurrency exchange.
This is already a very crowded space, with several well-established platforms that see a lot of developer activity. I don’t see Terra succeeding here.
The Terra debacle has shaken investor confidence in bitcoin and the broader cryptocurrency market, which has lost roughly $600 billion in value in the last month alone.
Regulators are concerned, with Federal Reserve Chair Janet Yellen and European Central Bank President Christine Lagarde both calling for urgent regulation of cryptocurrency, particularly stablecoins.
