This article was last updated on June 1, 2022. For specific information regarding the new Luna 2.0 chain, please see, “What is Luna 2.0?

In May 2022, the LUNA 1.0 crypto asset and its affiliated stablecoin, TerraUSD (UST), experienced an unprecedented event with significant ramifications.

TerraUSD was intended to be a stablecoin that would be “pegged” to the U.S. dollar. Unlike more traditional stablecoins backed by the U.S. dollar or gold, TerraUSD is an algorithmic stablecoin backed by sister crypto asset LUNA 1.0 and bitcoin. The project behind both is called Terraform Labs.

TerraUSD and LUNA 1.0 were designed to be stabilized by a “mint and burn” relationship with correlating supply and demand levers as follows:

  • If TerraUSD price goes over the $1 peg, the algorithm causes users to burn LUNA 1.0 and mint TerraUSD.

  • If TerraUSD price goes below the $1 peg, the algorithm causes users to burn TerraUSD and mint LUNA 1.0

However, extreme volatility in the crypto markets knocked this relationship off balance, sending the price of TerraUSD down rapidly. As sell pressures on TerraUSD escalated, the brisk “de-peg” of the stablecoin sent the price of LUNA 1.0 down with it.

On Thurs. May 25, 2022, Terraform Labs, the crypto project behind Terra USD (UST) and LUNA, announced that the Terra community had approved the creation of a new blockchain, Luna 2.0. The creation of this new chain is a response to unprecedented volatility on the Luna 1.0 chain, which caused the price of the original LUNA and UST to collapse almost to zero. You can read more about those events here.

The events surrounding TerraUSD and Luna 1.0 are unprecedented for a crypto project of its former market cap, and it’s important for investors to understand the context.

LUNA 1.0 (now LUNC) trading status on Public

Can I trade LUNA 1.0 on Public?

As of June 1 2022, our crypto trading partner, Apex Crypto, has resumed sell-only trading of the previous asset LUNA (now called Luna Classic, or LUNC). B

We’re commited to sharing new information with impacted members and in our app as it becomes available. Our Customer Support team is here to answer your questions, and you can get in touch with a member of our team by emailing support@public.com, or by tapping ⚙️ in the app and starting a chat.

Why is LUNC fully trading on other exchanges but not on Public?

Several crypto exchanges experienced intermittent or permanent trading halts for LUNC (formerly LUNA) given the volatility and liquidity challenges surrounding the asset and the migration of LUNA to LUNC. As of June 1, 2022, our crypto trading partner, Apex Crypto, has resume LUNC trading for sells only.

LUNA and TerraUSD: What happened and why

Why did the price of LUNA 1.0 (now LUNC) fall so quickly?

This is an unprecedented event in crypto, triggered by a few interrelated factors. TerraUSD is an algorithmic stablecoin backed by LUNA 1.0 and bitcoin, contrary to traditional stablecoins that are backed by less volatile assets like USD and gold. The reliance of TerraUSD’s “peg” on LUNA 1.0 is significant because the two were intended to create stability via a supply-demand relationship. This relationship was disrupted by extreme volatility in the crypto markets, which sent the price of both assets down precipitously in a short period of time.

What is the name of the crypto project behind LUNA?

The company behind these assets is called Terraform Labs. It was founded in Jan. 2018 by CEO and Founder Do Kwon. You can learn more at http://terra.money/.

How are all these assets connected?

LUNA 1.0 and TerraUSD are native Tokens of the Terra Network blockchain. While they exist in the same ecosystem, LUNA 1.0 and TerraUSD are distinct cryptos. TerraUSD was an algorithmic “stablecoin” tied to the value of fiat currencies (TerraUSD was intended to be pegged to the U.S. dollar). The aim of sister asset LUNA was to absorb stablecoin price volatility.

The intended relationship, which was disrupted by extreme volatility in the crypto markets and a subsequent failure of the project’s algorithmic protocol, was as follows:

  • If TerraUSD price goes over the $1 peg, the algorithm causes users to burn LUNA and mint TerraUSD.

  • If TerraUSD price goes below the $1 peg, the algorithm causes users to burn TerraUSD and mint LUNA.

TerraUSD and LUNA are no longer tied together in the same way. The relationship was broken on account of recent events. On May 25, 2022, Terra Form Labs announced a plan to create a new chain and native token, Luna 2.0, as part of a revival plan. As a result, the former LUNA asset, Luna 1.0, becomes Luna Classic (LUNC), with Luna 2.0 assuming the LUNA name.

What is a stablecoin?

Stablecoins are specific types of cryptos where the value of the crypto is “pegged” to an external, traditional reference like gold or the US dollar. The intended purpose of stablecoins is to allow investors to hold crypto assets with less volatility, and trade a dollar equivalent without needing to cash out their positions.

Stablecoins pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.

How was TerraUSD (UST) different from traditional, collateralized stablecoins?

UST is an algorithmic stablecoin, meaning it’s not fully backed by a “traditional” asset like USD and gold. Instead, UST has an algorithmic relationship with LUNA, a relationship that was intended to control the supply of both UST and LUNA. That relationship broke and sent the value of both UST and LUNA into a spiral toward zero.

What is the impact on the crypto ecosystem and stablecoins in general?

The intended purpose of a stablecoin is to retain a fixed price, and so recent events are stirring up a lot of debate in the crypto community and beyond. It’s important to note that not all stablecoins are set up the same (algorithmic vs. traditional).

What is decentralized finance, or DeFi?

DeFi is shorthand for “decentralized finance.” DeFi is a subset of the crypto ecosystem that manages financial transactions via blockchain technology. Terra LUNA is a DeFi blockchain protocol supporting an ecosystem for users to mint, manage and trade stablecoins. It was once the second-largest DeFi ecosystem.

Disclosure

Crypto trading and custodying services are provided by Apex Crypto LLC via the Public platform. Apex Crypto is not a member of FINRA or SIPC. Cryptocurrencies are not stocks and your cryptocurrency investments are not FDIC insured or SIPC protected. Please ensure that you fully understand the risks involved before trading.

This FAQ is for educational purposes and is not investment advice.

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