Luna vs. Luna 2.0: What's the Difference?

Luna 2.0 is Terraform Labs' phoenix, but should you trust it after what's happened?

Original Image Credit: Jernej Furman/Flickr

If you're up-to-date on crypto news, you've likely read about the catastrophic LUNA/UST crash Terraform Labs suffered in May 2022. As a result, these two cryptos lost almost the entirety of their value, triggering a lot of suggestions from the Terra community on what should be done next.

In the end, Terraform Labs' CEO, Do Kwon, decided that a hard fork of the Terra blockchain would be the best option. This gave way to Luna 2.0. But how, exactly, does Luna 2.0 differ from its predecessor, and what is its purpose?

The Origins of Luna 2.0

When Luna and TerraUSD crashed, those within the Terra community that had invested in either of the two coins began throwing suggestions at Do Kwon and Terraform Labs' developers. A mass burning was a particularly popular suggestion. However, Kwon stated on Twitter that this would not benefit investors (despite including a public burn address in the same post).

Do Kwon also suggested a hard fork of the Terra blockchain, which garnered mixed responses from the community. But regardless of the criticism, Kwon went forward with this decision, and Luna 2.0 launched on May 28, 2022, as the genesis block of the new blockchain was processed—just weeks after the initial crash. An airdrop also accompanied the launch to encourage new investments.

The original Terra blockchain is now known as Terra Classic, with its native coin now being called Luna Classic (LUNC).

But what's so different about this new blockchain, and what is it intended to do?

The Purpose of Luna 2.0

The new Luna blockchain was created as a way for Terra and its investors to bounce back from its devastating losses incurred through the LUNA/UST crash. With so many people suffering financial damages from the crash, TerraLabs wanted to compensate investors in some way, and figured a new blockchain and crypto was the best way to do that.

Those who held Luna tokens before the crash received 35% of the LUNA supply, with UST holders receiving 10%. An additional 25% will be given to investors who continued to hold LUNA or UST after the crash. The amount each investor receives depends on how much of either token they held beforehand or still hold now.

What's Different About Luna 2.0?

The key difference between Luna and Luna 2.0 is that the latter will not rely on any altcoin/stablecoin relationship. The original Luna crypto maintained value through its relationship with TerraLabs' algorithmic stablecoin, TerraUSD (UST). This relationship involved burning or minting one of the coins when the other coin's supply or demand fluctuated a little too much.

While this seems like a smart idea on paper, the nature of algorithmic stablecoins makes them much less reliable than typical stablecoins backed by a real-world asset. This, combined with a change to Anchor Protocol's UST savings returns, made it impossible to maintain the relationship between LUNA and UST, which resulted in a huge price drop for both coins.

It seems that TerraLabs has learned its lesson, as Luna 2.0 has no dependency on any kind of stablecoin, algorithmic or not.

However, Luna 2.0 suffered some big price plummets after its launch. In early June 2022, its price hit an all-time low of just $3.34. This is mainly due to the fact that people just don't have much faith in this coin after what happened in May. It isn't easy to regain the trust of investors after a crash so severe, and this is reflected in Luna 2.0's poor price performance since its launch.

Additionally, the CEO of Terraform Labs, Do Kwon, is under investigation in South Korea in the wake of the LUNA/UST downfall. Fraud is just one of the allegations against Kwon, with Terraform Labs' legal team also allegedly resigning amid this scandalous ordeal. In addition, Kwon's co-founder, Daniel Shin, is also being investigated. These legal implications instill further doubt into investors' minds, so it's no surprise that Luna 2.0 is already suffering.

Should You Trust Luna 2.0?

With so much having happened with Terraform Labs and its cryptocurrencies through the first half of 2022, there's no knowing what will happen next. Will investor confidence return? Will we see Luna 2.0 gain significant value? For now, all we can do is watch and wait to see how Luna 2.0 performs in this highly competitive and volatile market.