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Backers of Terra have approved a plan to revive the failed cryptocurrency enterprise — without the controversial stablecoin that helped trigger its stunning demise two weeks ago.
“With overwhelming support, the Terra ecosystem has voted to pass Proposal 1623, calling for the genesis of a latest blockchain and the preservation of our community,” Terra’s official Twitter account posted Wednesday.
The proposal would result in the creation of a latest blockchain — a shared ledger of transactions — and its associated luna token, which is now worthless after investors fled en masse within the crypto equivalent of a run on the bank.
Earlier this month, terraUSD, a so-called stablecoin, plunged below its intended $1 peg. That led to panic within the crypto market, with investors dumping its sister token, luna.
TerraUSD, or UST, is what’s generally known as an “algorithmic” stablecoin. Through some complex engineering, it was designed to keep up its dollar value through the creation and destruction of UST and luna, which might — in theory — help balance supply and demand.
That is different from what number of major stablecoins, like tether and USDC, are supposed to operate — as in, with actual fiat currency held in a reserve to support the dollar peg within the event clients withdraw their funds.
At their height, luna and UST had a combined market value of virtually $60 billion.
Under the brand new proposal, Terra plans to distribute tokens to holders of the old luna — soon to be renamed “luna classic” — and UST tokens.
About 30% of tokens will go to a pool of investors within the Terra community; 35% will go to those that held luna before its collapse; 10% to pre-collapse UST holders. An extra 25% of tokens can be allocated to traders who still own luna and UST after the crash.
Luna spiked greater than 20% Wednesday, in line with CoinGecko data. UST was up over 50%.
Many market observers remain unconvinced Terra’s revival plan will work.
“There was an enormous loss in confidence overall within the Terra project,” said Vijay Ayyar, head of international on the Luno crypto exchange.
“This can be a very crowded space already with plenty of already well entrenched platforms which have numerous developer activity. I do not see why Terra would succeed here.”
The Terra debacle has knocked investor confidence in bitcoin and the broader crypto market, which has collectively lost roughly $600 billion in value up to now month alone.
Regulators have gotten concerned, with the likes of Federal Reserve Chair Janet Yellen and European Central Bank President Christine Lagarde calling for urgent regulation of crypto — especially stablecoins.