Nine days ago, Terraform Labs founder Do Kwon shared a plan to revive the Terra Ecosystem after its stablecoin UST and cryptocurrency LUNA nosedived earlier this month, bringing down the crypto markets with them.
Today, Terra’s plan has passed and been approved by the community.
“Terra 2.0 is coming,” Terra’s official Twitter account tweeted on Wednesday. “With overwhelming support, the Terra ecosystem has voted to pass Proposal 1623, calling for the genesis of a new blockchain and the preservation of our community.”
The proposal will effectively create a new layer-1 Terra blockchain without its algorithmic stablecoin. The old blockchain will be called Terra Classic (LUNC) and the new blockchain will be called Terra (LUNA), the company tweeted. The Luna token is new and should not be confused with the old one under the same exact name (confusing, I know.)
The proposal had 65%, or about 200 million votes, in favor of the plan, while about 21%, or 54 million, abstained, and about 13%, or 41 million, voted no, according to data from Terra Station. The votes are cast based on LUNA token ownership, with one vote per token, not per user.
Given that it has passed its threshold, the relaunch plan will be rolled out on May 27.
Per the terms of the proposal, Terra will airdrop tokens to community members who never sold their old LUNA tokens or UST stablecoins amid the ecosystem’s downfall.
According to the plan, the tokens will be distributed as follows:
- 30% to its community pool.
- 35% to pre-attack LUNA holders.
- 10% to pre-attack UST holders.
- 10% to post-attack LUNA holders.
- 15% to post-attack UST holders.
The wallets tied to Terraform Labs and Luna Foundation Guard will not be a part of the airdrop whitelist, Terra wrote.
“[This} will make Terra a fully community-owned chain,” Terra said. “We believe this is an important step to empowering our ecosystem.”
On May 7, the algorithmic stablecoin TerraUSD (UST) fell below its $1 peg, which was always supposed to hold at a 1:1 ratio with the U.S. dollar, bringing down the rest of the crypto market with it.
The original LUNA hit all-time highs around $119 in April, just a few weeks before it crashed over 99% to current levels of $0.0001862, according to data from CoinMarketCap. The now-defunct algorithmic stablecoin UST saw a similar fate after it plummeted from its $1 peg to trade at $0.0862.
The supposed stablecoin was backed by LUNA, among other cryptocurrencies like Bitcoin and Avalanche, through arbitrageurs who swapped or burned LUNA and UST to keep the value of the stablecoin at its $1 peg.
As an algorithmic stablecoin, UST was distinct from public reserve-backed stablecoins like Tether (USDT) or USD Coin (USDC), which are backed by cash-equivalent reserves issued by centralized entities.
This situation has put a spotlight on the stablecoin space as U.S. government officials — and other regulators globally — have begun to discuss serious clampdowns on the digital assets. While some market players believe this could give the government an excuse to crack down on stablecoins even harder, others don’t believe this will affect stablecoins, TechCrunch previously reported.
“We have gone out of our way for four years to operate a reserved regulated model for dollar stablecoins and that’s stood the test of time,” Jeremy Allaire, co-founder, chairman and CEO of Circle, told TechCrunch on May 11.
Circle founded USDC alongside Coinbase in September 2018. USDC is pegged to the U.S. dollar on a 1:1 basis, with reserves consisting of cash and short-term U.S. Treasury bonds.
As of May 24, the total stablecoin supply was $155.19 billion, down 13.7% from $180 billion on the day of UST’s collapse, according to data compiled by The Block. USDC and USDT make up the majority of the stablecoin supply.
“Frankly, the shocking thing to me is how many apparently intelligent people in the crypto universe bought the hype on UST,” Allaire said earlier this month. “The biggest remark I have is how disappointing [it was that] so many thoughtful people believe that you could meme this into existence and stability. That was the surprising thing.”
The launch of LUNA 2.0 will be a test of whether the community is as strong as it says it is. But many are wary of trusting Kwon and the Terra team again after the LUNA and UST downfall.
“Luna 2.0 will show the world just how truly dumb crypto gamblers really are,” Billy Markus, the creator of the cryptocurrency Dogecoin, tweeted.
Binance, one of the largest cryptocurrency exchanges globally, tweeted it is working closely with the Terra team on the recovery plan for impacted users on its platform but did not disclose whether it would list the new LUNA token for trading.
It is unclear whether other crypto exchanges would consider listing the new LUNA token after the demise of the old one, but many in the crypto community on Twitter have argued it won’t make it onto centralized exchanges given the fear of history repeating itself. As the saying goes: Time will tell.