Can Terra's Luna 2.0 avoid another 'death spiral'

Luna had a market cap of some US$28 billion before it collapsed last month.

| More on:
A woman looks in anticipation at her laptop, watching eagerly.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Today marks one month since the cracks appeared in Terra’s UST and Luna tokens 
  • The original Luna token, now Terra Classic, is worth a tiny fraction of its value last month 
  • The launch of Luna 2.0 is not going entirely according to investor hopes 

One month ago today, on 6 May, the first cracks began to emerge in Terra's stablecoin, TerraUSD (CRYPTO: UST), and the token that was meant to help it remain pegged to US$1, Terra (CRYPTO: LUNA).

At the time the algorithmic stablecoin, UST, was among the leading tokens pegged to the US dollar. And Luna had a market cap of some US$28 billion.

By 12 May the collapse of the tokens and the blockchain that supports them was well underway. UST was down 70% and Luna had dropped 97%.

With the cryptos entering what's called a 'death spiral' as crucial investor confidence evaporated, things only got worse from there.

Unable to rescue the original tokens, Terra co-founder Do Kwon and his supporters have pressed through with the launch of a new Terra blockchain, supported by two new tokens.

Namely TerraClassicUSD (CRYPTO: USTC) and Luna 2.0 which is called, well, Terra (CRYPTO: LUNA). Rather than rebrand the new Luna 2.0, the company changed the name of the original to Terra Classic (CRYPTO: LUNC).

UST itself is no more, and its blockchain has been officially halted. As for LUNC? It's gone from US$86 this time last month to 0.0081 US cents.

Can Terra's Luna 2.0 avoid another 'death spiral'

As part of the rescue plan, Terra 'airdropped' the new Luna tokens to existing holders.

But according to Thomas Dunleavy, senior analyst at crypto research firm Messari (quoted by Bloomberg):

The airdrop was really poorly structured. It rewarded equity holders – LUNA holders – over savers or bond holders – Anchor depositors or UST holders. Any network in crypto is built on trust, by not only users but also builders who commit their time and capital to grow the network.

So, can Terra's Luna 2.0 avoid a repeat of what happened to 1.0?

Time will tell.

But it's not off to a great start.

According to data from CoinMarketCap, the Terra Luna 2.0 price currently stands at US$5.11. That's down 74% from the US$19.54 the token was worth on 28 May.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Terra. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

More on Cryptocurrencies

A rich buisnessman buys luxury items with Bitcoin
Cryptocurrencies

What's sending the gold and Bitcoin price to new record highs?

Investors are sending Bitcoin and gold surging to new record highs. But why?

Read more »

Gold Bitcoin coin in the outback.
Cryptocurrencies

Bitcoin and gold surge to record highs as investors pile into the debasement trade

A weakening dollar and record bitcoin price have investors chasing hard assets in 2025’s defining market trend.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
ETFs

$10,000 invested in CRYP ETF 3 years ago is now worth…

This ASX ETF has delivered mega gains for investors with a high risk tolerance.

Read more »

a pile of bitcoins with a bitcoin resting against it stands in front of an Australian flag.
Cryptocurrencies

Is it better to buy Bitcoin directly, or use Bitcoin ETFs?

Owning Bitcoin has never been easier on the ASX.

Read more »

Gold Bitcoins lying on a global finance currency chart with arrows shooting higher.
Cryptocurrencies

Bitcoin price jumps 3% on fresh hopes for retirement account access

Bitcoin just made another sharp move higher. Here’s what triggered the spike, and what it could mean for crypto adoption…

Read more »

A man clenches his fists with glee having seen the share price go up on the computer screen in front of him.
Cryptocurrencies

Guess which fast-rising altcoin is leaving the Bitcoin price gains in the dust

Donald Trump’s return to the White House hasn’t just boosted the Bitcoin price.

Read more »

A businessman rips open his shirt superman style to reveal a Bitcoin logo.
Cryptocurrencies

After 'Crypto Week' in the US, could Bitcoin surge higher?

Crypto Week in the US just gave digital assets a serious boost. What happens next?

Read more »

Bitcoin concept image.
Cryptocurrencies

Bitcoin price rallies back above US$120,000 amid US stablecoin legislation

The US government’s cryptocurrency legislation is driving investor interest in Bitcoin.

Read more »