LUNA 2.0 rose from the ashes of Terraform Labs’ LUNA, which has now become the ‘Classic’ (LUNC) version of this crypto asset. But how is it different from its predecessor, LUNC crypto, and should you trust it?

If you are new to crypto or just happened to miss the big news, here is what you need to know in the first place.

LUNA was the native staking token of the Terra Ecosystem, and also used to absorb the price volatility of UST (their USD stablecoin), UST  is an algorithmic stablecoin – in other words, it uses a mechanism where LUNA is burned as UST is minted, and as UST is burned, LUNA is minted in order to retain the 1:1 USD peg.

From what is believed to have been caused by organized manipulation to put pressure on the algorithm by swapping extremely large sums of UST for other stablecoins on the “Curve Pool”, which acted like an accumulator for UST, the value separated from the 1:1 peg. As panic set in and as the community wanted to cash in their UST, known as a “bank run”, in a short period of time, the situation became worse, resulting in a downward spiral.

When UST began to drop below $1, as per the mechanism, LUNA was minted in order to maintain the peg, utilizing the method of minting LUNA when UST is burned to ensure that the UST:LUNA liquidity pool remained balanced, i.e., the UST side and the LUNA side have the same dollar value.

Neither the algorithmic mechanism of the Terra Protocol nor the selling of BTC out of Luna Foundation Guard reserves to trading firms – hoping to collateralize the token – could bring UST back to $1. As a result of this devastating event, the price of UST plunged, while LUNA became worthless due to the extreme quantity issued to the market.

Following the crash, the CEO of TerraLabs announced a plan to revive LUNA – by forking the existing Terra blockchain into a new one, whereas the TerraUSD (UST) stablecoin was voted out of the new system. The new Terra blockchain, Terra 2.0, retaining the ticker ‘LUNA’ became the default ‘mainnet’’, and the original became the ‘classic’ network and renamed the token on this chain ‘LUNC’. The original UST, still available on the classic network, was then renamed USTC.

Please read Coinmetro’s LUNA 2.0 Distribution Statement.

Essentially, what makes LUNA 2.0, now simply ‘LUNA’, different from LUNA Classic (LUNC) is the fact that there is no stablecoin involved.

LUNA now becomes another SCP (Smart Chain Platform) akin to Ethereum, Solana, Fantom etc. In doing so they enable the existing protocols and dapps, with their communities and developers, to continue on.

For sure, the recent events have forced the creators of Terra to learn their lesson – the hard way.

The general viability of Terra 2.0 is yet to be determined, only time will tell. With USTC no longer being part of the game, another total collapse is less likely to happen. LUNA now represents a protocol similar to SOL, KDA, FTM, AVAX, etc., and there is no longer a mechanism tied to USTC.

It does appear that communities and builders across the dApps built on the Terra blockchain are continuing to grow their projects, and some loyalty to the projects and teams remains.

It is important to realize, however,  that it is hard to predict anything in a rapidly changing and highly volatile crypto market. A reasonable thing to do would be to monitor the performance of the new Terra Protocol before taking any major steps.

If you find it hard to stay up to date with the LUNC crypto news, we encourage you to join Coinmetro’s Discord or Telegram communities to keep up with the latest developments. Don’t stop there, sign up to our platform in just a few steps to start trading crypto today!