In-depth analysis: If USTC re-pegs, the LUNC community may split again

Author: Qin Xiaofeng, Odaily Planet Daily

Today, the long-silent Terra Classic (LUNC) and TerraUSD (USTC) have once again become the focus of the crypto community.

The results of the community vote show that Proposal #11324 "Re-peg USTC to LUNC" has been approved—although there are still three days left until the final voting ends, the proposal has already surpassed the minimum threshold, with over 78% voting in favor. Following the news, the prices of LUNC and USTC surged, with a maximum increase of 24% and 83% respectively in 24 hours, grabbing attention.

However, the resistance to re-pegging USTC to LUNC is significant, and it is unlikely to be achieved in the short term. The dream of "USTC returning to $1" seems even more unattainable. Furthermore, this proposal may lead to a potential split in the LUNC community, as Smart Stake has publicly stated that it will shut down its validator if the proposal passes.

Today's Terra Classic has long belonged to the meme coin category, lacking actual value. Its "biological father," Do Kwon, has shifted his focus to building the Terra ecosystem, causing Terra Classic and Terra to drift further apart.

1. The Difficulty of Implementing the New Proposal

According to forum information, Proposal #11324 was proposed by Duncan Day and mainly describes an operational framework for the LUNC community to re-bind USTC from the code level, consensus level, and guidelines, with the ultimate goal of restoring the value lost during the "de-pegging" event in May 2022, while simplifying the LUNC burn process.

Duncan Day believes that the instability of USTC's price effectively hampers Terra Classic's ability to generate revenue—currently, profitability mainly relies on complex AMM strategies (primarily arbitrage), but the price fluctuations of USTC hinder the implementation of these strategies and are also detrimental to some consumer-oriented businesses adopting USTC as a payment method. Therefore, a stable USTC is crucial for the entire Terra Classic ecosystem.

By re-pegging USTC to LUNC, the previous algorithmic stablecoin model can be activated, and high-frequency trading can increase the consumption scenarios for LUNC—LUNC currently charges a 1.2% fee on each on-chain transaction, which is then sent to a burn address to reduce LUNC supply. The ideal goal is for USTC to eventually return to its pre-de-pegging value ($1).

It sounds promising, but this proposal also faces numerous issues.

First is the cost issue; both the initial development and subsequent implementation require funding, and where this money will come from is a problem. If the community is not interested in the expenditures required by developers or contributors for this plan, or if it ultimately fails to raise funds or resources for the plan, the proposal will default to failure.

Second, the final outcome is uncertain. Proposer Duncan Day has also stated that the difficulty of implementation will be significant. If testing cannot be completed by the absolute deadline (May 27, 2024), it will end in failure; under such expectations, even if the community initially approves the proposal, whether it will ultimately be implemented remains a question mark.

Third, the new proposal may also lead to another split in the Terra Classic community, as 13% of voters chose to oppose it. Opponents argue that the previous collapse of USTC has proven that the algorithmic stablecoin model is a failure and should not be repeated; re-pegging could lead to the death of LUNC again, causing major exchanges to delist it.

"The community should focus on building organic demand for LUNC. Build innovative products to increase LUNC's utility. Smart Stake will vote against the proposal; if it passes, Smart Stake will shut down its validator," commented participants in the Terra Classic ecosystem.

Some community members also consulted Binance about the new proposal, which did not support it. "You ask if I should ask Binance? The L1 working group team has been communicating with Binance. Duncan can ask them about this proposal, but he hasn't. Why? Because their (Binance) answer is 'No with veto' (disagree, while exercising veto power). 100%."

2. Do Kwon and TFL Focus on the New Terra Chain

The Terra Classic community is in turmoil, while its "biological father" Do Kwon and Terraform Labs (TFL) have not made any statements, as their focus is not on the old chain but rather on the development of the new Terra chain.

Since the collapse of Terra last May, Do Kwon has been elusive, moving from South Korea to Singapore and then to Dubai. The latest reports suggest that Do Kwon may be hiding in Serbia. Considering that there is no extradition treaty between South Korea and Serbia, along with the recent "voluntary withdrawal" of Matthew Albright from the class action lawsuit against Terra and Do Kwon, Do Kwon can take a breather for now and continue to be active in the crypto market for a long time. (Note: Two other class action lawsuits against TFL and Do Kwon, filed by law firms Bragar Eagel & Squire, P.C. and Scott+Scott, are still ongoing.)

According to DL News, TFL's communications director Zion Schum confirmed that Do Kwon is still "actively involved in the company's daily operations." To promote the development of the new chain Terra, TFL has posted multiple job openings on its official website, including positions for smart contract developers and full-stack engineers, all for remote work, and Do Kwon will personally interview employees. A TFL spokesperson stated that the company currently has about 40-50 employees.

(Terra official website job openings)

In January this year, TFL upgraded the original Station wallet, adding support for other Cosmos chains and simplifying the complex process of interacting with multiple blockchain network DApps. For example, Station has a "Quick Stake" feature, where users only need to select the blockchain they want to support and the amount of tokens to stake, and Station will automatically select the best-performing nodes based on the validators' past performance.

(Do Kwon personally promoting the Station wallet, inviting the Cosmos core team to join the Station cross-chain integration)

Currently, Station has gained support from about 24 blockchain networks based on Cosmos. A TFL spokesperson stated that there are plans to expand Station to Ethereum EVM chains in the near future.

In addition to Station, the Terra 2.0 ecosystem also includes the DAO infrastructure Enterprise, which provides foundational support for DAOs. Users can create multi-signature wallets, new tokens, or NFT communities. Insiders say that Do Kwon participated in the creation of this project as an advisor.

Furthermore, TFL is developing an economic module called Alliance. Other protocols can register with Alliance to become members, allowing A chain's token holders to stake their tokens on B chain; holders can earn additional rewards while ensuring the security of both networks; alliance members can vote on governance to decide which tokens to accept. More importantly, Alliance does not require stakers to become liquidity providers, thus protecting them from impermanent loss. TFL plans to launch Alliance next month. So far, five projects have expressed their intention to implement Alliance at launch.

Currently, the Terra official website lists a total of 50 ecosystem projects, covering various sectors such as infrastructure, DAOs, wallets, gaming, and NFTs. Of course, considering the significant losses suffered from algorithmic stablecoins, Do Kwon has clearly not focused on this aspect again.

3. Terra 2.0 and Terra Classic Drift Further Apart

"Terra is not a centralized platform that went bankrupt due to misappropriation of funds or fraud; it is one of the largest Layer 1 blockchains, with two assets in the top 10 on CMC." In a confession last November, Do Kwon believed that the failure of UST was merely coincidental and that Terra itself had no issues, thus deciding to rebuild the ecosystem. It is both self-redemption and an effort to prove the bright future of blockchain. "I believe the most important use case for crypto is to become a decentralized currency that transcends politics and nation-states. I still believe this today—I hope others succeed in our failed mission."

A Terra Classic that is already riddled with holes clearly cannot bear Do Kwon's ambition for a resurgence; Terra 2.0 is the focus of its development, with many projects migrating from the old chain. Objectively speaking, Do Kwon and TFL have maintained the operation of Terra Classic after last year's collapse, not abandoning it entirely, leaving enough time to hand over the infrastructure to the most technically capable teams.

Although Terra Classic has proposed some revival plans and roadmaps, it has not stirred up significant waves, and the coin price has experienced short-term speculative surges and drops. For Terra Classic, the future is unclear, and it currently seems to only serve as a meme coin, providing entertainment for market speculation in public discourse.