What is LUNC and is it still relevant?

Not too long after the Terra Luna network crashed in May 2022, the term Luna Classic (LUNC) appeared almost immediately. Looking at how things turned out for the Terra blockchain, investors and crypto enthusiasts have not stopped asking the same question repeatedly: “What is Luna Classic?”

Luna Classic is the native token of the now-crashed Terra network. After the 2022 Terra Luna implosion, there was an agreement and attempt to revive the protocol. The action involved creating a new blockchain and coin to replace the old one. When the new one was made, the community decided that the old and new would continue simultaneously. They only implemented minor changes, like changing the name of the former Luna coin. It was previously known as Luna but was altered to Luna Classic (LUNC).

The Fall of Terra Network: Why LUNC and UST Algorithmic Stablecoin Crashed

Why did Terra Luna Crash? Terra crash resulted from Luna hyperinflation, caused by the bank run on UST, the largest stablecoin on the network. Luna had an infinite supply, algorithmically designed to ensure UST stablecoin maintained the $1 peg.

If someone wanted UST, they could exchange (or "burn") $1 worth of LUNA to get 1 UST. This process reduced the supply of LUNA and increased the supply of UST. The system used an algorithm to maintain UST's stable value such that when UST was worth more than $1, people were incentivized to burn LUNA to create UST and sell it for a profit. By so doing, it increased the UST supply and brought its price back down to $1. Conversely, if UST were worth less than $1, people would burn UST to create LUNA, reducing UST supply and bringing its price back up to $1.

How Did Former Terra Luna, Now Called LUNC, Lose Its Value?

On May 9, 2022, the system faced a massive crisis, causing people to lose confidence in the network, and UST started to lose its $1 peg, reaching as low as $0.67 by May 10. Although it temporarily recovered and stabilized around $0.90 during the day, this was short-lived. By May 11, UST had dropped further to $0.23. The Luna Foundation Guard, a non-profit organization supporting the Terra ecosystem, attempted to use the UST Reserve to defend the peg, but their efforts were unsuccessful.

At this point, the market's confidence in UST was beyond repair, leading UST holders to rush for the exits. Those unwilling to sell their stablecoins at a steep discount used the Terra protocol's arbitrage mechanism to burn UST and mint LUNA tokens, hoping for a better deal.

As previously mentioned, the arbitrage mechanism gave users $1 worth of LUNA for each UST token they burned. As the price of UST fell, more LUNA had to be issued for each burned UST, leading to new LUNA tokens flooding the market. The circulating supply of LUNA skyrocketed from 380 million tokens on May 10 to 6.5 trillion tokens by May 13, and with no demand for the unending supply, everything came crashing down.

When UST began losing its peg, LUNA traded at around $62. By May 13, LUNA's price had plummeted to approximately $0.0003, a drop of more than 99.99%. These two assets were previously among the top 10 most valuable cryptocurrencies, yet the crisis that twice halted Terra blockchain swept them under the carpet.

Several crypto natives consider the crash of the once $40 billion Terra ecosystem to be the largest token collapse in the crypto industry. Within seven days, both UST, the largest algorithmic stablecoin, and Luna, its supporting twin, fell to almost zero, and those who held onto their LUNA coin were left with virtually nothing.

Understanding the Origin and Purpose of LUNC: The History of Tera Blockchain and Luna

Terra protocol has established a name for itself as an open-source blockchain platform that hosts decentralized applications (dApps) and provides developer tools. It has garnered recognition for its swift transaction speed and accessibility for Decentralized Finance (DeFi) products.

The Terra blockchain project began in 2018. It was developed by Terraform Labs, which Do Kwon and Daniel Shin founded. Do Kwon later became well-known and was essentially the public face of Terra.

The Terra blockchain aimed to create a decentralized payment system using stablecoins tied to various fiat currencies. For instance, the ecosystem included UST, a stablecoin pegged to the US dollar, and KRW, a stablecoin pegged to the Korean won. The native token, LUNA, was used to pay fees on the blockchain and played a key role in maintaining the price stability of Terra's stablecoins.

Unlike most stablecoins, such as USDT and USDC, backed by fiat money reserves and related assets like treasury bonds, Terra used an algorithmic model to peg its stablecoins, such as UST and KRW.

Terra's Seigniorage Explained

Terra's financial system involved a concept known as "Terra's Seigniorage." In the traditional sense, seigniorage refers to the profit made by a government through issuing currency. In Terra's context, seigniorage is used to keep the price of Terra's stablecoin closely pegged to the US Dollar through user rewards and penalties (Proof of Stake).

In the Terra ecosystem, seigniorage refers to the profit generated from the difference between the cost of creating stablecoins like UST and their market value. Essentially, users could burn LUNA tokens to mint an equivalent value of stablecoins. This system helped maintain the stablecoin's peg to fiat currencies through supply and demand adjustments. As stated earlier, when UST was above $1, users would mint more UST by burning LUNA, increasing the supply and lowering the price. Conversely, if UST were below $1, users would burn UST to mint LUNA, decreasing the supply and raising the price.

The profit from this process was used to reward LUNA stakers and fund the Terra ecosystem. Stakers received transaction fees and seigniorage profits as rewards. The system relied on these economic incentives to keep the stablecoins pegged to their respective fiat currencies.

Exploring Luna Classic

Understanding the Terra Classic ecosystem remains incomplete without exploring Luna Classic (LUNC), a proprietary cryptocurrency that plays a significant role in the Terra Classic network.

Terra's Stablecoin Mechanism

The old Terra ecosystem has two main cryptocurrency tokens: Terra USD (UST) and Luna. UST is a stablecoin pegged to various fiat currencies, including the US dollar, South Korean won, and the International Monetary Fund's Special Drawing Rights (SDR). LUNC, on the other hand, acts as a market-driven seigniorage asset that helps maintain UST's stability.

Terra's stablecoins are designed to maintain a stable value, providing a reliable exchange medium in the Terra ecosystem. 

The Role of LUNC in the Terra Luna Ecosystem

LUNC coin remained instrumental in the smooth running of the Terra ecosystem, as every transaction revolved around it. LUNC, the native coin of the Terra ecosystem, was used for staking. LUNC holders could stake their tokens with validators to gain passive income from transaction fees. Since Luna operated a proof-of-stake consensus mechanism, validators needed to hold a certain quantity of LUNC coins to be selected for validation; subsequently, they were rewarded for securing the protocol.

LUNC was also important for governance, as LUNC holders could vote on various protocol parameters and upgrades. The democratic approach ensured that Terra's development and growth remained in its community's hands.

Finally, Luna was a seigniorage asset that helped maintain Terra's stability. Terra maintained its peg to the US dollar through a complex mechanism involving the burning and minting of Luna. This stability mechanism is unique to Terra and is one of the reasons why it stood out in the crowded field of cryptocurrencies.

The Role of the LUNC Burn Mechanism

The burn mechanism plays a vital role in Luna Classic's value regulation. The native token of Terra LUNA, LUNC, had an initial supply of 7 trillion after the crash due to hyperinflation. Since then, it has significantly reduced due to the burn mechanism, resulting in a current supply of approximately 6.78 trillion Tokens.

The burning mechanism reduces the circulating supply of LUNC, creating scarcity and potentially driving up the token's value. The mechanism also contributes to the stability of the Terra ecosystem and helps maintain the peg of stablecoins, further enhancing LUNC's investment potential.

Considering these factors, Luna Classic's prospects can be easily predicted, offering valuable insights for investors interested in 'Terra Classic's narrative.’

Introduction To Terra Luna 2.0: Why Was Terra Luna 2.0 Launched?

Why was Terra Luna 2.0 Created? Terra Luna 2.0 was launched to minimize investor losses and suffering and provide a better alternative to LUNC. After the Terra Luna crash, Do Kwon and his team immediately set a plan to create a new chain, where a significant amount of its native token would be airdropped to holders of old UST and LUNC as compensation.

Birth Of Terra Classic & Luna Classic 

Tera Classic, Luna Classic, and the old Tera Luna network are the same. Luna Classic, or Terra Luna Classic, is the rebranded Luna network and Coin that crashed in May 2022.

On May 28, 2022, Do Kwon and his team formed a new hard-fork chain under the name TERRA(LUNA) to replace the old one, even though the old one was left to continue functioning. The original Terra chain was rebranded into the Terra Classic chain, and the original native coin, LUNA, was renamed LUNA CLASSIC (LUNC).

In addition, all the network stablecoins were renamed; Terra USD(UST) was now called Terra Classic USD (USTC), Terra KRW (KRT) was rebranded to Terra Classic KRW (KRTC), and (EUT) Terra EUR, the stablecoin pegged to the euro, was also renamed to Terra Classic EUR (EUTC), etc. No stablecoins were launched on the new chain.

LUNA Classic (LUNC) has become more of a speculative asset, similar to meme coins like Shiba Inu and Dogecoin, rather than serving a functional purpose within the Terra ecosystem.

Key Components of Terra Luna: Terra Luna 2.0 Versus LUNC

Although there are many similarities between the LUNA 2.0 coin and the LUNC coin, you can still pinpoint some differences. 

1. While the two blockchains seem to have almost the same native token, Terra Luna 2.0 is a hard fork of the original Terra Blockchain. 
2. LUNA is the native cryptocurrency of the new TERRA LUNA 2.0. At the same time, LUNC, also known as Luna Classic, is the native cryptocurrency of the old Blockchain, now known as the Terra Luna Classic eco-system.
3. Another major difference is that LUNC is instrumental to the stability of the UST stable coin, while the current LUNA exists as a stand-alone native coin of the hard fork version.

Luna 2.0 Airdrop on Luna Classic

As part of the Terra Classic chain creation, Luna tokens, Luna 2.0's native token, were airdropped to users based on pre-depeg and post-depeg snapshots.

However, by adopting a burn mechanism, the total supply of LUNC was significantly reduced, resulting in the current supply of approximately 6.82 trillion. This reduction in supply played a crucial role in LUNC's market performance, contributing to a market capitalization of roughly $1.07 billion by December 11, 2023, with the token value at $0.00018.

This distribution model and the subsequent burn mechanism sparked significant interest in LUNC, culminating in a price rally following a tax burn proposal on September 21, 2022. The rally was amplified when Binance announced burning all trading fees related to Luna Classic, leading to a 60% price surge within a few hours.

Understanding Terra Classic's history and token distribution provides crucial context for investing in LUNC or participating in the Terra ecosystem. As with any investment, understanding the underlying technology and market dynamics is key to making informed decisions.

Expert Predictions for LUNC: What are LUNC's plans?

Despite the market's inherent volatility, experts seem positive about Luna Classic's trajectory. By December 2023, the circulating supply of LUNC was close to 5.8 trillion, contributing to a market capitalization of approximately $1.07 billion. The token value was $0.00018 on December 11, 2023.

Significant price rallies have been observed in the past. Notably, a tax burn proposal on September 21, 2022, triggered a major rally. Further, when Binance announced burning all trading fees related to Luna Classic, the price surged by 60% within a few hours.

Looking ahead, price predictions for Luna Classic remain positive. Experts forecast an increase to around $0.00067 by 2025, potentially reaching $0.0019 by 2039. These projections suggest robust growth for the cryptocurrency, making Luna Classic a topic of interest for beginners and experienced investors alike.

Conclusion

As stated above, LUNA and LUNC are not necessarily the same; the gist remains that LUNA is the native currency of the new TERRA 2.0, while LUNC is the native currency of the old terra Blockchain, known as Terra-LUNA Blockchain. Also, market supply, price, all-time high, all-time low, circulating supply, and many others are not the same. With all the above analysis, you'd understand that LUNA is doing better than LUNC, but LUNC shouldn't be underestimated.

The all-time low of LUNC was $0.000000999967 on May 13th, 2022, and this is because of the crash. Since then, you will notice that the LUNC price has not created a new low; rather, they maintained the price structure, making higher highs and higher lows.

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