What happened to Terra Classic? Your essential guide

What happened to Terra Classic? Your essential guide

The Terra blockchain network hit the headlines in May 2022 when the price of its cryptocurrency, LUNA, came crashing down. This caused panic in the wider crypto world because Terra was built as a stablecoin project. This meant that, supposedly, it was pretty much impossible to shake. So, it's little wonder its sudden demise resulted in even more chaos.

Founded in 2018 and launched in 2019, the ethos behind Terra was to establish a blockchain that prided itself on certainty and stability, attracting users and investors who otherwise might have shied away from cryptocurrencies altogether.

So, what exactly caused such a sudden major crash and derailing of Terra? FXCM takes a detailed look at the history of the cryptocurrency, what happened to it, and the subsequent split and emergence of the new Terra network.

What is Terra Classic?

Created in South Korea by economist Daniel Shin and Do Kwon, a computer scientist, the original Terra network contained various decentralised projects, the most popular and well-known being TerraUSD (UST) and LUNA.

Trade the News: View our Economic Calendar

With UST pegged against the U.S. dollar via an algorithm, the hope was to increase its endorsement and adoption by both businesses and individuals.

But in May 2022, the price came crashing down. On the back of this, the blockchain was split into two. This resulted in a new network named Terra 2.0, built without stablecoins, and a new LUNA coin. Meanwhile, Luna Classic (LUNC) was formed on the previous Terra blockchain.

It's possible to invest in both LUNA and LUNC but doubts linger over their long-term prospects, as confidence in the blockchain is likely to remain low for some time.

Why did Terra Classic crash?

In the space of just one week in May 2022, UST and LUNA failed to maintain their peg against the U.S. dollar and plummeted dramatically, losing nearly 99% of their value. There were multiple reasons behind the crash, which caused investors to lose a total of around $60 billion.

An already unstable market

Just before the crash, there was already a bearish sentiment in the cryptocurrency market. This was partly due to rising interest rates and investor wariness.

Although based on stablecoins, Terra Classic and LUNA succumbed. The fact that Anchor, Terra's top protocol, was also in deep water by this point only added more fuel to the fire. Investors pulled out in droves, causing a huge knock-on effect.

Technical difficulties

Due to limitations on the amount that could be minted (created) and burned (removed), the mass exodus caused temporary withdrawals as the blockchain couldn't keep up with demand. As investors looked to swap to LUNA, the extensive minting of this cryptocurrency also contributed to a reduction in value.

One huge sell-off

The final nail in the coffin was when one sole investor sold over 85 million UST tokens. This, inevitably, led to others following suit, culminating in a downward spiral and, eventually, the crash.

Ultimately, Terra's algorithmic foundation, the fact that it was a stablecoin, the extreme leverage, and unsustainable incentives all contributed to the unfortunate plummet.

Will Terra Classic recover?

To combat the disastrous effects of the crash, Do Kwon launched the Terra 2.0 chain with the LUNA token. Its first appearance on the market was just three weeks after the fateful crash. The old Terra chain was separately revived with the introduction of the LUNC token.

Since their launch, LUNA has fared better than the Terra Luna Classic token (LUNC). This is likely due to LUNA cutting all ties to the original network and, therefore, developing more trust among investors. LUNC tokens, on the other hand, have remained at a much lower value ($0.0001801 compared to LUNA's $1.67 as of the time of writing).

But, in recent weeks, LUNC has made headlines with a rise in the market cap, with some predicting a Terra Luna Classic price of $1 in the near future. This could have been largely due to 6.4 billion being pulled from circulation, sparking positivity among investors.

However, after being charged with fraud on the back of an investigation into the collapse of the original Terra, Do Kwon's 'wanted' status by Interpol is likely to limit how high Terra Classic can go. As investors are reminded of the tainted history, confidence could once again drop in the Terra Classic cryptocurrency.

Does Terra Classic have a future?

This all depends on a variety of factors, including general market sentiment, competition investor trust, and the reliability of the network behind it. However, with such a turbulent past and a history of extreme volatility, it's possible that, even with the recent increase in value, Terra Luna Classic (LUNC) is unlikely to enjoy the same highs as some other cryptocurrencies such as Ethereum.

On the other hand, Terra Classic could present opportunities for traders who are willing to invest long-term and are not overly worried about the lack of momentum this cryptocurrency suffers from.

Put simply, it's down to personal choice. But the gains made over several years could still be fairly minimal.

Where can you monitor Terra Classic news?

As is the case with all currencies, keeping abreast of news that's likely to impact markets is a key factor in monitoring the Terra Classic price. As well as mainstream media, Do Kwon's Twitter page provides detailed, if somewhat subjective, information on crypto trends and Terra developments and updates.

It's also a good idea to stay up to date with other cryptocurrency prices so comparisons of trends can be made to determine whether a bullish or bearish market is unique to Terra or more widespread.

Is Terra Classic a good investment?

Like any other type of trading, some risks come with investing in Terra Luna Classic and it is possible to lose money. And as the crypto world can change rapidly, sometimes in a matter of hours or minutes, it's essential to weigh up the pros and cons before diving in.

If market conditions are right, Terra Luna Classic could have the potential to provide gains for investors. But this depends on the length of investment and how traders react to further news involving Do Kwon and the Terra network.

Many believe LUNA to be a safer bet than LUNC due to the launch of a completely new network and its severance from the original Terra Classic. And whether Terra Classic ends up being a good all-around investment is yet to be seen. With the big crash of May 2022 still fresh in the minds of traders, it's still too early to assume investor confidence in this once-failed cryptocurrency.

However, if the price continues to rise, albeit slowly, it could prove to be worth taking a calculated risk on.

How to access Terra Classic with FXCM

It's easy to buy and sell Terra Luna Classic with FXCM. Trade Terra LUNC or LUNA cryptocurrencies long or short without the need for a wallet. Plus, you can decide on the size of your contracts, ideal for when you're just starting out or if you want to test the waters on a particular market.

Trade Terra Classic with FXCM

Ready to make your move? FXCMs trading station offers a quick and easy-to-use platform to trade crypto CFDs, complete with advanced features for an enhanced trading experience.

It's simple to . Alternatively, to gain experience without the risk, open a free demo account and practice trading Terra Luna Classic.

FXCM Research Team

FXCM Research Team consists of a number of FXCM's Market and Product Specialists.

Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.