The crypto market was terrified of the collapse of Terra Luna (now “LUNC”), and the crypto market was terrified after the collapse of Terra Luna (now “LUNC”). But only one week later, Do Kwon (Terra Founder) made a proposal to restore Terra 2.0. On May 28, 2022, this proposal was approved and Terra officially resumes operations with a new governance token, LUNA, and no UST. Thus, the market continues to revolve around Terra 2.0, its differentiation, airdrops, support of exchanges, and whether it will crash again. Let’s find out with Coincu about five possible reasons that will make Terra fall again.
What is Terra 2.0?
Terra 2.0 is the most recent version of Terra (LUNA) that Do Kwon has devised as a regeneration strategy. The goal is to propose a fork of the Terra blockchain as well as an airdrop to crypto investors who have been impacted by the recent market downturn. The main goal is to restore trust in this stablecoin through the Terra ecosystem’s new venture.
Terra’s first attempt at network recovery was the “Luna Go Forward Proposal” to distribute new LUNA tokens to affected users before and after the attack.
Overall, this effort has many supporters. However, restoring people’s trust is not easy. Many questions have been raised about the creation of this new chain. Specifically, CZ had some opinions, like why a new fork chain? If the old chain is still valid and the users are active, how to synchronize between the two chains?
So, as small investors, we should also consider the risks that may happen again with LUNA before making an investment decision in this new LUNA.
Here are 5 possible reasons why Terra will fall again.
5 reasons Terra 2.0 will fail again
Investors are not fully/ unevenly compensated
On May 30, 2022, Terra started distributing airdrops to users. However, this distribution is uneven and not exactly what the project has set out.
Many users have received relatively fewer tokens through airdrops than promised by the team. Someone got only $59 when they kept about $300K in LUNA. Another user claims to have received only $112 from the airdrop after losing 50K worth of LUNA.
The project team has also acknowledged this and promised to fix it soon. But did not specify a specific time.
This makes the trust of users in the project shaken and hard to recover.
Terra launches new UST
According to FatTerra, a Twitter account dedicated to covering the Terra collapse, a second stablecoin is reported to be being designed. The community was unhappy with this news because it was UST that led to the direct downfall of LUNA. Some of them were surprised that TFL is trying to relaunch a stablecoin. However, some seem open to the idea that stablecoins are fully collateralized.
The question is, is the conversion of UST from Algo Stablecoin to Over collateral stablecoin really effective, and can UST keep the peg price level when the market has strong corrections?
The answer is no. In fact, at the present time, collateral stablecoins do not completely keep the peg. Therefore, launching a new UST with a new mechanism will not effectively help UST regain the trust of users. When trust users do not have more powerful market fluctuations, it is likely that the new UST will be panic sold and collapse again.
Anchor Protocol has an oracle problem leading to bad debt
The third reason that could lead to the downfall of Terra 2.0 is the oracle bug on Anchor Protocol. Anchor is the core protocol on Terra in increasing demand for USTs. However, on May 28, 2022. The oracle of this protocol had an error, causing the price of bLUNA to increase to $5 according to the price of the new LUNA.
A user took advantage of this hole and borrowed 40 million UST, then withdrew it with a huge profit of $800,000.
Although then the platform’s team was fast enough to fix the bug and avoid additional losses. But we still need to consider when Anchor is officially deployed on Terra 2.0 and this error occurs again. Because the second loss will amount to several million dollars, not just a few hundred thousand as it is now. Because the second loss will amount to several million dollars, not just a few hundred thousand as it is now.
Luna 2.0 Governance will decide the fate of the LUNC – the classic version
Currently, on Terra, there is a proposal to reactivate IBC for Terra to release a large amount of token value locked on IBC. And this is a proposal to use Terra 2.0’s management system for decision-making because Terra V1’s governance system is still controversial.
The PFC Validator has confirmed that this proposal can be completed on Luna Classic. However, “it costs 1c and is filled with spam.” Therefore, it seems that governance is made on Luna 2.0 will be more optimal.
This may raise the issue that the Terra community may be divided and disunited between Terra V2 and Terra V1.
As we also know, Lunatics is an extremely powerful community group and contributed a large part to the development of Terra V1.
The use of the entire governance system of Terra V2 to decide the future of the Luna Classic successor chain may cause the community to split. Since then, making Terra V2 has lost confidence in the user.
Belief in the founder- Do Kwon
The fifth reason for Terra’s demise was the personal problem of the founder of the project, Do Kwon. Currently, Do Kwon is entangled in legal issues related to “money laundering”.
According to FatMan, Do Kwon did this thanks to establishing a blockchain consulting firm Kernel Labs. The National Tax Service discovered last year that Kernel Labs had received a 6 billion Won (approximately $4.8 million) cryptocurrency from Terra.
Moreover, Do Kwon has modified the original LUNA revival plan to try to remove any links to Kernel Labs in a highly suspicious move.
Can Terra 2.0 continue to be the tool that Do Kwon uses to continue his illegal activities?
The above are the five reasons that I think will affect the upcoming development of Terra 2.0 and it is likely that another collapse will occur.
If you have any other comments, do not hesitate to comment for Coincu.
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