Terra Luna Classic (LUNC): An overview
Source: LUNC classic community/X
Terra Luna Classic is a cutting-edge open-source blockchain protocol renowned for its capability to host a dynamic ecosystem ofdecentralized applications (dApps) and offer advanced development tools. This platform is uniquely built on theCosmos SDK, distinguishing itself in the blockchain space.
At its core, Terra Luna Classic is designed to pioneer the next generation ofdecentralized finance (DeFi) by leveraging the Tendermintconsensus mechanism, aproof-of-stake (PoS) system. The Terra Luna Classic network is tailored to support a broad spectrum of DeFi services. These includedecentralized exchanges (DEXs), lending platforms, and a variety of financial applications that operate autonomously without the need for central authorities.
A key feature of Terra Luna Classic is its integration withsmart contract functionality. This allows for the creation and execution of complex agreements and applications directly on the blockchain.
What is LUNC?
LUNC, the native token of Terra Luna Classic, is central to its ecosystem, mainly via staking. In staking, LUNC holders allocate their tokens to aid the network's functions, such as transaction validation. Stakers receive rewards, typically more LUNC tokens, for their support. Additionally, token holders candelegate their LUNC to validators, sharing in any revenue generated.
Luna Classic tokenomics
The tokenomics of LUNC can be summarized as follows:
- Total supply:The total supply of LUNC tokens, as of December 2023, is6.822 trillion.
- Circulating supply: As of December 2023,5.834 trillionLUNC are in circulation.
- Community pool:The community pool contains around 3.208 billion LUNC tokens. These tokens are typically allocated for community initiatives, development projects, or other purposes as determined by the governing body or community consensus of the Terra Luna Classic network.
- Pool staking: At present,985.455 billion LUNC tokens are staked in the network.
The origin of Terra Luna Classic
Source: LUNC classic community/X
Terra Luna Classic is the rebranded version of the originalTerra (LUNA) cryptocurrency, which emerged from Terraform Labs, co-founded by Do Kwon and Daniel Shin. Terra was a blockchain ecosystem featuring astablecoin calledTerraUSD (UST)and its sister token,LUNA.These two formed an algorithmic stablecoin system designed to maintain a 1:1 value with the US dollar. Luna acted as a floating rate cryptocurrency to support UST's dollar peg.
After its launch, Terraform Labs conducted an Initial Coin Offering (ICO) for the LUNA token in early 2019. The success of Terra saw it rise to become one of thetop 10cryptocurrencies by market capitalization.
The Terra collapse
In May 2022, the Terra ecosystem faced a devastating collapse, wiping outbillions of dollars in market value. Central to this collapse was theAnchor protocol, a blockchain-based borrowing and lending platform.
To promote the use of its stablecoin, UST, the Anchor protocol offered an exceptionally high yield of19.5% to depositors of UST. This attractive yield led to a substantial increase in the issuance of UST. However, as the volume of deposits surged, the financial burden to sustain these high yields became unsustainable.
By April 2022, the cost to maintain these yields reached about$6 millionper day. During April 2022, early indicators of instability in the network began to surface. The value of LUNA started to decline. Concurrently, there was a reduction in new users joining the Anchor protocol, coupled with an increase in existing users leaving the platform.
The first signs of a crisis in the Terra ecosystem emerged on May 7, 2022, when several large holderswithdrew substantial amounts of UST from Anchor. As the exchange of UST for LUNA accelerated, UST struggled to perform as intended amidst massivesell-offs. This failure led to UST losing its peg to the US Dollar.
The ensuing loss of stability caused a rapid devaluation of LUNA. In an attempt to stabilize UST's value, more LUNA was created, but this only exacerbated the situation, leading tohyperinflation from1 billion to over6 trillion and further devaluation of LUNA's worth. Once valued highly, LUNA suffered a nearly99%loss in its value as its price plummeted to a mere fraction of a dollar.
This devaluation of UST and LUNA led to a significant loss of investor confidence in the Terra ecosystem and had a pronounced negative impact on the broader cryptocurrency market. This event was marked as one of the mostsignificant collapses in the history of cryptocurrency.
What happened after Terra collapsed?
In the aftermath, the Terra blockchain wasforked. Thus, two Terra blockchains now function parallelly:
- The original Terra blockchain with the token rebranded to “Luna Classic (LUNC).”
- A newly launched blockchain protocol calledTerra 2.0 with its native token called “LUNA.”
The aim ofTerra 2.0was to inherit all the protocols and applications of the former network. There was also a significant update related to the network's stablecoins.
All of the original network stablecoins, includingUST,KRT, andEUT, underwent a renaming process. They were then known asTerra Classic stablecoins, designated asTerra Classic USD (USTC), TerraClassicKRW (KRTC), andTerraClassic EUT (EUTC), respectively.
Notably, the new blockchain iteration did not feature any "Terra" branded stablecoins. This distinction further differentiated the original from the new chain, reinforcing the legacy of the former while setting the stage for the innovations and offerings of the latter.
LUNC community
Source: LUNC classic community/X
Despite the introduction of a new Terra blockchain, theLuna Classic community has remained resilient and active. Many members of the community, including investors and traders, have expressed opposition to Kwon's plan for restoring the blockchain.
Moreover, the community is actively pursuing a variety of initiatives aimed at revitalizing the legacy project, demonstrating its commitment to its ongoing development and sustainability.
LUNC burning
In an effort to redress the damages from over-minting, the community initiated a token burn mechanism. This initiative began with a burn rate of1.2% for every LUNC transaction, aiming to reduce the supply from6.8 trillion to10 billion. The intention was not just to limit supply but to bolster its demand and value, especially in the aftermath of a substantial market crash.
Validators took a front seat in orchestrating this reduction, and their efforts didn't go unnoticed. Major exchanges, namelyBinance andKuCoin, stepped up, backing the burn mechanism, which, in turn, sent encouraging signals to other platforms to support LUNC's recovery. This amalgamation of social traction and exchange support set the stage for the cryptocurrency's potential growth.
Since May 2022, around85 billion LUNC have been burned. While the initial burn rate was1.2% per transaction, an adjustment saw it drop to0.2%, aiming to invigorate blockchain activity.
However, this rate wasn't impactful enough on the circulating supply. Recognizing this, a proposal was made in March 2023, and by May of the same year, the burn rate was elevated to0.5%.
Binance has significantly contributed to the burning of LUNC tokens. To date, they have burned over40 billion LUNC, accounting for over half of the total LUNC burned. On December 1, 2023, in their 16th batch of LUNC burning, Binance burned nearly4 billion LUNC tokens.
Will LUNC reach $1?
The Luna Classic Community has been actively involved in several initiatives aimed at increasing the value of LUNC, targetinga goal above the$1mark. One notable effort is a recent proposal designed to re-enable the market module.
This strategic move is expected to assistUSTC in regaining itsdollar parity, which could positively influence LUNC’s value. In parallel, Daniel Hong, a former developer for Terra, has introduced a new stablecoin namedMint Cash, which is backed byBitcoin (BTC).
To promote this new cryptocurrency, the team has planned anairdrop for holders of LUNC and USTC. This announcement has spurred increased trading activity around LUNC, contributing to a rise in its value.
Moreover, In December 2023, the Terra Classic community passedProposal 11888, which proposed reducing the network's validator count from135 to100. This sparked a lively debate among community members due to concerns about potential centralization, which could undermine the fundamental decentralized ethos of blockchain networks.
Subsequently, Terra Classic's community approvedProposal 11889, introducing a "Pay-per-job and governance-ruled Job List" model. Garnering an impressive91.99%approval in "Yes" votes, this proposal aims to supplant the existing monthly compensation model, which was seen as less effective.
On the technical front, the Terra Luna Classic network marked a significant milestone on December 8, 2023, with the successful implementation ofversion 2.3.2. This update was executed atblock 15751600 and represents a key step in the network's ongoing development.
