Terra's Collapse & Rebrand - Learn with MEXC Blog
TerraClassicUSD (USTC), formerly known as TerraUSD (UST), is a decentralized algorithmic stablecoin that utilizes the Terra platform. The blockchain was renamed and the coin was given a new name following the May 2022 LUNA/UST collapse.
Background about Terra Classic
You will better understand Terra Classic if you are aware of the brief history of the original Terra blockchain and the Terra Luna crash in May 2022.
Ethereum and Terra
Price stability is required in order for cryptocurrency investors to trade, exchange, or invest conveniently due to the market's price fluctuations. This desire has led to the development of stablecoins, a category of cryptocurrency whose prices are often tied to traditional fiat currencies, tangible assets, or other commodities like US dollars, Euros, metal, etc.
Before it was destroyed, Terra served as an open-source blockchain infrastructure for the algorithmic stablecoin TerraUSD (UST), which was 1:1 tied to US dollars. In other words, theoretically, 1 UST should be equal to 1 USD. The Terra blockchain enables users to spend, save, sell, or transfer UST fast.
To mimic this pricing stability, Terra created a "mint and burn" method using UST and its faulty native asset LUNA. The algorithm is briefly described as follows:
- When the price of UST is less than $1, users and arbitrageurs may submit (burn) 1 UST to the system and get (mint) $1 worth of LUNA.
- When the price of UST is more than $1, users and arbitrageurs may transmit (burn) $1 worth of LUNA to the system and get (mint) 1 UST.
As an illustration, UST investors may choose to burn their shares to produce $1 worth of LUNA in order to benefit. The price of UST will rise as a result of the decline in market circulation. Holders will burn their LUNA to create UST whenever the price of the currency reaches $1.
To maintain price stability, arbitrage trading tactics that control UST and LUNA supply and demand should be applied.
Collapse of UST/LUNA
Many people believe that in May 2022, a significant amount of UST was suddenly poured onto the market, causing a rapid decrease in the price of UST and the depeg of the stablecoin. As a result, investors started to sell more UST and manufacture more LUNA as a result of their increasing fear, which significantly boosted the amount of LUNA in circulation. LUNA fell due to the death spiral, and within a week, practically all of its market value was disappeared. The Terra team announced a hard fork to the Terra blockchain after a community vote in an effort to save the Terra ecosystem and win back investors' confidence.
Hard forking and Rebranding
As a result, the first Terra blockchain's old name was changed to Terra Classic. All balances on the prior blockchain were preserved, and Terra stablecoins became TerraClassic stablecoins and Luna became Luna Classic (LUNC). One of them to become TerraClassicUSD was TerraUSD (UST) (USTC).
Ecosystem of Terra Classic
Terra Classic now supports a number of protocols. Wallets like Terra Station, the official project wallet, and Leap Wallet allow for the transfer of assets and tokens, transactions, interactions with smart contracts, etc. Terra Bridge allows for the cross-chain transfer of all tokens supported by Shuttle, including Terra native tokens, the majority of mAssets, and other token types from the Terra ecosystem. Terra Classic powers the NFT project Galactic Punks in addition to supporting DEX like Terraswap and Astroport.
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