It should be noted that Binance CEO Changpen Zhao previously actively criticized both the actions of Terra developers during the aforementioned incident, as well as Kwon's plans to revive the project. According to Zhao, the organisation that ran the ecosystem was trivially negligent in its duties, and Kwon's efforts will not bring anything sane to investors.

From his perspective, launching a new chain would not have the same value as the Terra ecosystem had before. Which means there may not be much point in such an action. Be that as it may, a plan for trying to resurrect the blockchain and the brand has already been formulated.

What happened to UST and Luna?

Earlier this month, the UST algorithmic stablcoin lost its peg to the dollar, after which it failed to regain parity. That said, the main function of a stablcoin is to be equal in value to the real currency. In the case of centralised stablcoins, it’s simple: they are issued by issuing companies that hold the currency and the securities backing the tokens in their reserves. That is, they essentially have the assets to guarantee a current supply of the stabel in circulation, which means the cryptocurrency itself is not printed out of thin air.

Terra creator Do Kwon

Algorithmic stabelcoins are more complex. They are managed by smart contracts rather than real assets. In the case of UST, the algorithm is an arbitrage mechanism between UST and a native token of the Terra ecosystem called LUNA. Whenever the UST price falls below its peg, users can buy “discounted” tokens and exchange – “burn”, removing them from circulation – for the equivalent of $1 worth of LUNA. Conversely, if the UST exchange rate rises above parity, users can reverse the transaction, which is also beneficial to them.


As a reminder, arbitrage is a separate type of trading, which involves using the difference in asset prices on different platforms to one's advantage. In other words, people make money by buying an asset cheaper on one trading platform and selling it higher elsewhere.

Do Kwon pattern on UST chart

According to Decrypt’s sources, the algorithm proved ineffective when the deviation in the value of UST became too large, opening up huge arbitrage opportunities between Stablecoin and LUNA. As a result, the prices of both coins went to zero and more than $40 billion in capitalisation disappeared from the crypto market.

What will happen to the Luna ecosystem?

A summary of the update is described in the voting section of the Terra Station platform. In general, the proposal involves the creation of a new Terra blockchain without the algorithmic Stablecoin. The old blockchain will be called Terra Classic and the old token will be called Luna Classic or LUNC. The tokens of the new blockchain will be distributed based on a so-called snapshot or snapshot of balances among holders of the “old” LUNA and application developers in the ecosystem.

Another interesting detail: the wallet of the Terraform Labs team behind Terra development will be excluded from the list of recipients of the new blockchain tokens. By doing so, Do Kwon wants to demonstrate that the project will be "entirely in the hands of the community". And while that sounds noble, such a move is unlikely to clear the developer's reputation, as its mistakes have led to enormous losses for others.

Voting results

The distribution model for the new LUNA tokens includes 30 per cent for the community pool, 35 per cent for LUNA holders before the ecosystem collapsed and 10 per cent for UST token holders in the Anchor (aUST) stack before the incident. Another 10 per cent will be distributed to LUNA holders after the collapse, well the remaining 15 per cent is for UST holders – again, after the collapse.

Pictures of user balances were taken before and after the collapse of the ecosystem. Users who purchased LUNA before the collapse, as well as held tokens during and after the collapse of its price, will fall into two categories at once and will therefore receive more tokens from the new blockchain. That said, it itself will be launched as early as 27 May.

Note that some cryptocurrency exchanges have already confirmed support for the updated blockchain. For example, here’s a message from HitBTC.


What will be the future of Terra after all this has happened? We think the project's prospects are dim, given the huge damage to the reputation of both the development team and Do Kwon himself. Moreover, Kwon could face legal action, with enough pressure from big investors given the amount of losses the investors have suffered. In addition, we have already seen relevant news from South Korea, where the police have frozen the assets of the Luna Foundation Guard, asking some stock exchanges to block the withdrawal of corporate funds by LFG representatives. So it's not only too early to make any predictions yet, it's also too difficult.

Follow developments in our millionaires’ cryptochat. There we discuss other important developments from the world of decentralisation.