How is the reconstruction of Terra after the ecological disaster? One article to understand the development status of LUNA 2.0

Written by: Kadeem Clarke

Compilation: Deep Tide TechFlow

Introduction

The collapse of Luna and UST last year, the legal problems of Do Kwon, and the decline of Terra's ecology are all fresh in people's memory.

But a lot of things don't quite die after a negative event. Reconstruction and speculative sounds are intertwined, so we see the activity of LUNA Classic or LUNA 2.0 again.

What is the current situation of Terra ecology? Is there still something to watch?

With doubts, M6 Labs sorted out the current Luna2.0, Terra ecology, partnerships, and technological progress, and presented us with their current status.

The last UST crash resulted in a blockchain split, also known as a hard fork, creating a new blockchain and token that now operates independently.

LUNA or LUNA 2.0 represents the new LUNA token resulting from the fork, the original LUNA token is now known as LUNA Classic or LUNC. More than 65% of holders support the revival of the Terra platform after its launch.

Terra is a blockchain project created by Terraform Labs and is the basis for numerous stablecoins and decentralized applications. The Terra dollar, or Terra $UST, which uses an algorithm to peg it to the U.S. dollar.

Terra UST is an algorithmic stablecoin designed to reduce the inherent volatility of cryptocurrencies like Bitcoin. Previous versions of the Terra protocol have been extended to allow stablecoin developers to create Terra DeFi projects.

Terra and LUNA are the two cryptocurrencies used in the project. Terra is a stablecoin standard tied to fiat and other currencies. For example, TerraUSD (UST) is pegged to the US dollar, while TerraKRW (KRT) is pegged to the Korean won.

The network's staking and governance asset is the native token LUNA. Users stake LUNA to gain governance rights, become validators and earn rewards. Users can also use LUNA to create Terra's UST token or a token pegged to its native currency.

However, it is important to note that although these stablecoins are linked to fiat currencies, they are not backed by fiat currencies. The LUNA token is considered an algorithmic stablecoin.

An algorithmic stablecoin is a digital asset whose value is derived from a set of rules rather than being tied to a physical asset. This approach allows Terra users to invest in the price of these pegged tokens without needing to hold their physical form.

Manager 2.0

Luna 2.0 is the latest version of Terra (LUNA) with the goal of proposing a fork and airdrop of the Terra blockchain. The main goal of the new project in the Terra ecosystem is to restore trust in the stablecoin.

history

Terra Luna launched on the Cosmos blockchain in April 2019. Initially issued at $0.19, the price fluctuated between $0.19 and $0.30 in the first few months. Do Kwon is the founder and CEO of its parent company, TerraformLabs, and has been working on the growth of the ecosystem with co-founder Daniel Shin since January 2018.

In 2019, Kwon discussed the origin of his blockchain on CNBC, with the central idea that digital assets can only increase in value if they innovate and create value for users.

How does Terra 2.0 work?

Terra 2.0 is an update of Terra Classic.

While Terraform Labs and Do Kwon won't be part of Terra 2.0, the company behind Luna and Terra has a "robust revival plan" to effectively salvage the entire Terra Classic ecosystem by creating a new Terra. This is the first project to be given the Terra 2.0 badge.

While there are strong signs that Terra 2.0 will not suffer the same fate as its predecessor, cryptocurrency exchanges and technology entrepreneurs are divided on the viability of supporting the Terra 2.0 blockchain.

Do Kwon and Terraform Labs' original plan focus on validating every invalid block and blockchain network transaction so that the new LUNA token and Terra 2.0 can flourish? The plan will be implemented via a hard fork, meaning Terra 2.0 will not be directly linked to LUNA Classic, but will remain on the same blockchain.

Do Kwon's proposal was considered, but more support is needed. Terra 2.0 is not based on the original Terra blockchain, but on a brand new blockchain, the new Terra. LUNA Classic has replaced the original LUNA token.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-f07d04ce5a-dd1a6f-62a40f)

What is the consensus mechanism of Terra 2.0 (LUNA 2.0)?

The Terra 2.0 cryptocurrency blockchain uses a standard proof-of-stake consensus algorithm to verify transactions. At any one time, there are 130 validators participating in the network consensus, whose voting power is determined by the number of LUNA 2.0 bound to the node. Gas fees and a fixed annual LUNA 2.0 inflation rate of 7% reward grants.

LUNA 2.0 token holders contribute to consensus by delegating their tokens to validators. Validators typically stake their own money with delegates. In this system, validators keep commissions and then distribute the rewards to delegators.

What makes LUNA unique?

The following factors make LUNA an attractive cryptoasset:

FAST CROSS-BORDER PAYMENTS:

The Terra stablecoin allows for seamless cross-border exchange globally at minimal cost. Terra has an average block time of six seconds, enabling fast transactions worldwide.

Low Transaction Fees:

Transaction fees on the Terra blockchain are among the lowest in cryptocurrencies.

Interoperability:

Terra runs on Terra Bridge, a cross-chain system that makes Terra tokens interoperable. Terra tokens can be transferred between Binance Smart Chain and Ethereum, and efforts are underway to support cross-Solana transactions. Terra also runs the CHAI payment software, which allows Terra's users to seamlessly complete payments on its blockchain.

Automated Liquidity Pool:

After depositing, tokens will be automatically pledged on its protocol, saving users time and effort in finding liquidity pools. You can easily use Terra tokens in many applications built on its protocol.

What is the difference between LUNA 2.0 and LUNA Classic?

Despite their striking similarities, LUNA Classic and LUNA 2.0 are different. Under the new governance plan, the Terra network has split into two chains. The old chain will be Terra Classic with Luna Classic Token (LUNC), while Terra with LUNA Token will be the new chain called LUNA 2.0.

Instead of being replaced entirely, the old LUNA will co-exist with LUNA 2.0. Any Terra Luna DApps will prioritize LUNA 2.0, and the development community will start building DApps and providing utility functionality for the new token. However, it does not include algorithmic stablecoins.

Terra Classic will retain its community as many investors and traders are against Do Kwon's recovery plan and new chain. Terra Classic still has a huge fanbase. The classic community has agreed to burn as many LUNC tokens as possible in order to reduce the money supply and increase individual token prices.

What will happen to the old Terra blockchain?

Both TerraUSD and LUNA Classic are native tokens of the old Terra network. The goal of this blockchain platform is to provide a peer-to-peer electronic cash system. UST and LUNA are two tokens available on this blockchain.

Since UST is a stablecoin, it can be directly pegged to the US dollar. This means that UST is expected to maintain a value close to $1. The LUNA token is critical to ensuring that UST maintains its peg. The peg is maintained using a standard contract-based algorithm. UST is kept at or close to $1 by burning LUNA tokens. This allows for the creation of new tokens.

Users on the original Terra platform must exchange LUNA tokens for UST, and then exchange UST for LUNA. Even if the market price of one token differs from the other at the time of the trade, these trades will be made at a guaranteed $1 price. Ultimately, TerraUSD was unable to maintain its peg to the U.S. dollar, causing its value to plummet. However, the exact reason for the depreciation of this stablecoin has not been found yet.

When this happens, the algorithm that powers the entire platform tries to correct the problem by issuing much more LUNA tokens than usual. In fact, the total LUNA supply increased a lot from over 700 million tokens around May 5, 2022, to 7 trillion tokens just eight days later. As a result, LUNA lost 99.9% of its total value. By introducing trillions of new coins into the market, the value of a single coin is eventually reduced to a fraction of a cent.

The old LUNA tokens have been renamed LUNA Classic and are listed under the LUNC ticker because they are basically worthless. On the other hand, the old Terra blockchain will effectively cease to exist. The UST stablecoin is the only aspect of the Terra blockchain that will be completely removed. Even though new LUNA coins will be issued, stablecoins will not be issued.

Terra Ecosystem

The Terra ecosystem has a strong focus on DeFi applications, which gave birth to Terra Finance (TeFi). The sheer number of native projects built on Terra and the ability to attract significant capital at an early stage demonstrates the quality of the ecosystem.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-25b16a1086-dd1a6f-62a40f)

Astroport protocol

Similar to the Uniswap/Curve relationship, the Astroport protocol aims to be the core DEX or automated market maker of the Terra ecosystem, facilitating the exchange between all assets on Terra. Within 7 days of its launch, 23,379 unique wallet addresses deposited more than $1.2 billion into the protocol. In addition to this, Astroport's unique token distribution and economical long-term staking design will also protect the protocol from any rapid outflows in the short term.

It is one of LUNA's most important dApps with a total value locked (TVL) of $13.93 million.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-a29f187d6e-dd1a6f-62a40f)

1.TerraSwap

TerraSwap is the first AMM protocol on Terra, similar to Uniswap. The main difference is that TerraSwap does not allow users to freely list tokens or create pools.

In a nutshell, TerraSwap allows users to swap tokens and create liquidity pairs on the Terra blockchain. These liquidity pairs, called pools, provide users with liquidity to exchange blockchain tokens. The pool tracks the balance of the two assets to ensure that there is always a certain amount of tokens available for transactions. Users who provide liquidity will be rewarded with LP tokens.

TerraSwap is the original TerraSwap protocol.

2.Prism Protocol

The Prism Protocol is one of Terra's most unique protocols. It enables users to split yield-generating assets into two distinct components: a yield component and a principal component, thereby creating new asset classes. Users can maximize their price or yield exposure while avoiding liquidation risk.

Because PRISM tokens are the underlying asset in all liquidity pools, users must hold PRISM and other assets to provide liquidity. Users who want to participate in governance can stake their PRISM to obtain xPRISM and receive a portion of the protocol fee.

Prism only supports refraction of Terra's native token LUNA into pLUNA and yLUNA. PRISM intends to refract more tokens from Layer 1s to mining pools with high APY in the future, and allows to choose a variety of yields to maturity to guarantee the income obtained. Users can also use Telegram to place limit orders for token swaps and receive alerts when orders are filled.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-b943955884-dd1a6f-62a40f)

3.Risk Harbor

Risk Harbor is a DeFi risk management marketplace that protects liquidity providers and stakers from smart contract hacks and attacks using an automated, transparent and unbiased claims process.

Risk Harbor's core belief is that every crypto asset should be secured without the need for trusted intermediaries, enabling a truly permissionless open financial system that works for everyone.

Unlike other decentralized conservation policies, Risk Harbor uses a parametric conservation pedagogy. Its algorithmic, transparent and impartial solution eliminates the need for oracles and third-party institutions, while providing near-instant payments.

Individual users can purchase the required parametric protection through Risk Harbor. Underwriters create risk-managed pools using predefined parameters, and buyers choose which pools to invest in. The total premium is paid upfront and the amount is added proportionally to the corresponding underwriter's pool.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-aa3a235218-dd1a6f-62a40f)

4.Spectrum Protocol

Spectrum Protocol is a decentralized yield optimization platform that enables users to earn compound interest on their liquidity mining.

Spectrum Protocol automatically maximizes returns on various liquidity pools and other yield products in the Terra ecosystem by securing and managing various investment strategies using smart contracts.

Spectrum Protocol's main product is Vaults, where you can provide liquidity or stake your crypto tokens (SPEC, MIR, ANC, mAssets, etc.). Users can choose an auto-stacking investment strategy, under which the vault automatically increases the number of deposited tokens by returning rewards to the LPs originally deposited, or an auto-staking strategy, under which, The vault automatically pledges the rewards to the corresponding governance stake to further increase the number of rewards.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-f8139a156e-dd1a6f-62a40f)

5.Mars Protocol

The collapse of Terra Luna cost the cryptocurrency market $60 billion. Platforms like the Mars Protocol resurfaced, while platforms like the Pylon Protocol faded away.

Mars is one of Terra Luna's main lenders.

Mars Protocol's new plans include launching a standalone Cosmos application chain on January 31st. Its new features will make lending and lending easier for blockchains in the other Cosmos ecosystem.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-e099c75189-dd1a6f-62a40f)

Partnerships

There are many partners in the past and present of the project. From a purely research perspective, these partnerships have strategic value. Allina Health, The McKnight Foundation, AmeriCorps, Omaha Public Schools, and Washington Nationals are just a few examples. The project has over 300,000 Twitter followers and a solid social media presence.

As the total size of DeFi grows, the utility of DeFi stablecoins will increase. The overall utilization of LUNA is good, which keeps them stable.

Additionally, Terra is focused on decentralized finance and needs a much larger user adoption rate to pose a real challenge to the dominant blockchains.

Alliance: Harnessing the Power of Incentive Coordination

Following an overwhelming vote on proposal 4717, the LUNAtic community has successfully integrated the Alliance module into the Terra mainnet, opening up a host of possibilities for growth and cross-chain collaboration.

Alliance represents a paradigm shift in the scaling of the decentralized economy.

Notably, chains like Migaloo and Kujira have decided to integrate it.

The ability to coordinate at scale across different actors through economic incentives is an exciting feature emerging from the Internet's transition from Web2 to Web3. Alliance is an open-source Cosmos SDK module that expands on this concept by allowing blockchains to align incentives with neighboring chains, developers and users to strengthen and expand their ecosystems.

The Alliance's core purpose is to serve as an economic tool to steer the monetary policy (i.e., staking rewards) of the decentralized economy towards a desired goal. This is achieved by allowing users to stake multiple tokens on a single chain to earn a portion of the native staking rewards - something that Web3 did not previously have.

Alliance is a tool that can dynamically adapt as the needs of the ecosystem change. It can convert any token into Alliance assets, and adjust its reward weight and yield through chain governance. Both users and decentralized economies can use Alliance to:

1. Diversification and Increased Staking Yield - By increasing yields above 0%, new, illiquid chains can supplement their native staking with uncorrelated, less volatile, and more liquid Alliance assets income. Larger, more mature chains can diversify their native staking returns by using external tokens as Alliance assets and setting yields higher than 0%. Users can diversify and increase their rewards by staking on one chain, bridging their LSD to another chain and staking, thereby earning a second benefit in the form of that chain’s native token.
2. Attract users, liquidity and developers - By allocating low yields to Alliance assets, chains of any size can attract new users and liquidity from bridging and staking within their ecosystem. Staking creates positive feedback: higher usage leads to higher liquidity, which in turn drives more developers to create dApps, further increasing usage and liquidity, and so on.
3. Incentives for app developers - Alliance can provide L1 staking benefits to app token stakers in the ecosystem, allowing users of the most promising apps to be rewarded directly from L1 fees and inflation . The community can also use Alliance to fund the development of key ecological applications (such as DEX, money market, NFT market, etc.) or new DeFi primitives.
4. Deepening Liquidity of Basic Token Pairs - The chain can increase the liquidity of required token pairs by using LP tokens as Alliance assets and assigning reward weights greater than 0%.

![How is the reconstruction of Terra's ecological disaster? An article to understand the development status of LUNA 2.0] (https://img.gateio.im/social/moments-69a80767fe-305c8ff2a2-dd1a6f-62a40f)

in conclusion

Considering the debacle of its UST stablecoin, the future of LUNA 2.0 cannot be fully determined. Previously, LUNA was home to some very popular DeFi projects, but now it is rarely mentioned.

Terra's new blockchain has struggled to gain sufficient market share due to the mass exodus of investors, developers and community members, many of whom were hit hard by the collapse of the original Terra ecosystem last May.

Even if the new blockchain does not include an algorithmic stablecoin, it will not cause its collapse like the unlocking of the old ecosystem, but trust in the Terra project seems to have been irreversibly damaged, and many predict that LUNA will eventually drop to zero. However, the future often cannot be predicted entirely from past events. The success of Terra LUNA 2.0 depends on whether the performance of the new chain is good enough to regain the trust of investors.