Michaël van de Poppe - 18 May 2022
Terra community to vote on revival plan
The entire Tera Luna ecosystem has collapsed this month as UST lost its peg to the US dollar and failed to regain it despite many efforts by the team and community. For those unfamiliar with UST, this is an algorithmic stablecoin that derives its value through the burning and minting of LUNA. As UST lost peg millions of LUNA were minted to take UST out of circulation and this only caused further dilution of the governance token. The peg of UST was inevitably lost. You can find more information about these events in our previous blog.
As it was clear that the ecosystem had collapsed, ever since the community has waited for a recovery plan for Terra and this one recently went up for voting.
Terra Ecosystem Revival Plan
Do Kwon has posted the second ecosystem revival plan proposal on Agora. The plan is basically to start a new chain without an algorithmic stablecoin tied to the governance token. This was inescapable for any revival plan as no one will have the same trust in a similar mechanism as UST-LUNA.
Furthermore, the plan is to hard fork the existing Terra Luna blockchain. The new chain will be called Terra while the original chain will be called Terra Classic, in a similar fashion to Ethereum and Ethereum Classic.
The new governance token will be airdropped in the following distribution:
Community pool: 25%
Controlled by staked governance
10% earmarked for developers
Pre-attack LUNA holders: 35%
All bonded / unbonding Luna, minus TFL at “Pre-attack” snapshot; staking derivatives included
For wallets with < 1M Luna: 1 year cliff, 2 year vesting thereafter
For wallets with > 1M Luna: 1 year cliff, 4 year vesting thereafter
Pre-attack aUST holders: 10%
500K whale cap - covers up to 99.7% of all holders but only 26.72% of aUST
15% unlocked at genesis; 85% vested over 2 years thereafter with 6 month cliff
Post-attack LUNA holders: 10%
Staking derivatives included
15% unlocked at genesis; 85% vested over 2 years thereafter with 6 month cliff
Post-attack UST holders: 20%
15% unlocked at genesis; 85% vested over 2 years thereafter with 6 month cliff
Wallet addresses owned by Terraform Labs, the creator of Terra Luna, will not participate in the airdrop. So the chain will be community-owned this time.
Backing by projects
Some of the larger projects on Terra Luna have already voiced their support for this proposal as Tweeted by Terraform Labs founder Do Kwon:
However, two major protocols built on Terra have failed to voice their support; Astroport and Mars Protocol. Astroport, the major DEX of the ecosystem, has been very quiet on social media since the issues with UST arose. Mars Protocol, the major money market of the ecosystem, issued a Tweet yesterday that said that its “compatibility with any Terra hard fork is uncertain without the presence of a reliable stablecoin. In light of this fact, Mission Control recommends withdrawing all positions from the Red Bank and Fields of Mars as soon as possible.“
So Terra might lose Mars Protocol while Astroport’s future is uncertain as well. Although it is good to see that there is more unison among builders about how to move forward, potentially losing these two projects is unfortunate.
Further legal issues
While Terra might continue to exist with this hard fork, the future looks more uncertain for Terraform Labs and its founder, Do Kwon as many legal issues are likely to arise. In South Korea, where Terraform Labs is based, a politician of the ruling party has called for a hearing of Do Kwon on the events. He also wants to talk to exchanges about their behavior during the crash. There have also been talks of investors going after the team, and Do Kwon specifically, for the major losses caused by the crash.
In the midst of all this, the legal team of Terraform Labs has quit, an unfortunate development for the team.
Conclusion
The community is about to vote on the new revival plan. Should the plan pass, there would finally be a way forward for the ecosystem after the collapse of UST and LUNA, albeit without a decentralized stablecoin. Despite being able to move forward and create a new layer 1, we see no way in which Terra will regain its former glory. The trust is gone. And although it will still have potential as a layer 1, its main selling point and utility has disappeared with its stablecoin.
The vote will occur later today.
