What is LUNA Token? A Dive into the History of Terra and the Collapse of UST

Terra is fundamentally a decentralized and public blockchain with a suitable atmosphere for applications. It allows developers to advance their ideas.

Terra is a decentralized and public blockchain that provides a suitable atmosphere for applications and allows developers to advance their ideas. With the help of Terra, developers can easily use various advanced development tools to create organizations and applications.

Its native currency, LUNA crypto, is a significant part of the ecosystem. LUNA crypto could be used to pay transaction fees, earn rewards, and purchase your favorite digital art. It is a second-generation cryptocurrency that created its ecosystem after the fall of Terra Classic.

Now, with this introduction, many questions arise. One could wonder what Luna token is, Terra Classic, and what the history behind all this is. So, let’s dive and explore.

The Past of Terra and the Collapse

The story began long back in 2018. Do Kwon and Daniel Shin introduced Terra in the same year. Later, in 2019, Terraform Labs, led by them, developed the Terra blockchain and the original native coin LUNA.

They aimed to create a blockchain protocol that would support the algorithmic stablecoins. The Terra blockchain became well known for the same reason. It was home to many algorithmic stablecoins.

TerraUSD (UST) was the most famous one pegged to the US dollar. Terra’s principal auxiliary asset was the LUNA token. Users could vote on proposals from the Terra community using it as a governance token.

In May 2022, they both met their demise. UST started to decouple from its peg to the US dollar on May 9, 2022. The price of UST fell to 10 cents throughout the following week. LUNA crypto dropped from its peak of $119.51 to “virtually zero” at the same period.

The market capitalization lost over $45 billion due to this crash. All of this took place in a single week. An attack on its liquidity pool brought this catastrophe.

This attack became possible due to vulnerabilities in the blockchain’s underlying architecture. Terraform Labs put the Terra blockchain on hold on May 13.

Emergence of the New LUNA crypto

Terra’s new journey started in the same month of 2022. On May 25, a proposal was approved to reissue a new LUNA crypto and Terra blockchain. The original chain and the coin faced rebranding. They were renamed Terra Classic and LUNA Classic (LUNC), respectively.

“Terra 2.0” is another name for the new LUNA currency. This recovery plan was created to provide cryptocurrency investors with an airdrop and a fork of the Terra network. Do Kwon termed it as a regeneration strategy.

Their purpose was to assist anyone affected by the present market downturn. Like the previous one, the new LUNA crypto is also used to govern the Terra network.

Moreover, it could be used for staking. Users can stake their LUNA crypto to validators to earn rewards from the transaction fees. Validators are the miners and run full nodes within the ecosystem. It allows them to verify each transaction made on the Terra network.

After the collapse, Terra 2.0 issued a vested policy to prevent immediate selling. Investors who previously owned LUNA Classic became eligible to receive a certain quantity of LUNA tokens by the policy.

These stakeholders got LUNA coins via an airdrop with predetermined vesting periods and percentages. The overall supply was capped at one billion tokens.

About 30% of them were placed under the supervision of staked governance. Developers get 10% of the total supply. Its purpose was to promote the Terra environment’s growth and innovation.

Pre-depeg Luna holders gained an additional 35% of the LUNA crypto. Different wallets held varying amounts of tokens, which influenced the vesting period.

30% of the claims went to wallets holding less than 10,000 LUNA. The remaining 70% of LUNA tokens had a two-year vesting period, with a six-month clif.

Wallets with less than a million LUNA had a two-year vesting period with a one-year cliff. On the contrary, wallets containing over a million LUNA faced a 1-year cliff and 4 years of vesting period.

Despite all of its efforts to recover, Terraform Labs declared bankruptcy last year in January 2024. The estimated assets and liabilities of the company ranged from $100 million to $500 million.

CEO Chris Amani stated that filing for bankruptcy was crucial in settling legal difficulties. He claimed that this measure will allow the company to achieve its collective aims.

U.S. Bankruptcy Judge Brendan Shannon said this action was a “welcome alternative.” He stated that this measure would help to mitigate investor losses rather than engaging in lengthy litigation fights. The court approved the bankruptcy on September 19, 2024.

Terraform Labs faced many legal challenges. The US SEC charged the corporation with