“A chance to rise up anew from the ashes,” Do Kwon, founder of Terraform Labs, wrote in his plans announcing the new cryptocurrency.
The coin replaces the old Luna cryptocurrency and trades under its ticker symbol, LUNA. Investors who lost money in Terraform Labs’ previous coins may get some new tokens free, based on a ratio determined by the company. The old Luna coin can still be traded, but under a new name, called Luna Classic. It’s listed as LUNC on crypto exchanges.
The new Luna coin has gotten off to a rocky start, tumbling over 75 percent in value during its first hours, and regaining some of it in subsequent days. As of Tuesday evening, the coin was trading at just above $8.50 — or roughly half the price it started at, according to Coin Gecko, a website that tracks cryptocurrency prices.
But amid its ups and downs, the release has drawn fierce scrutiny from cryptocurrency analysts, investors and critics. It highlights a broader issue with the cryptocurrency market, they said: Companies can sell what they want with little worry about regulation or enforcement — putting everyday investors most at risk.
“It’s the little guy who’s being sold false promises [and] who’s getting absolutely torn apart by this,” said Molly White, a software developer who runs the website Web 3 Is Going Just Great. “It’s just an enormous failure on the part of regulators.”
A Terraform Labs spokesperson said the decision to launch a new cryptocurrency was made with large support from its community and that the company looks forward to what the future holds.
In 2018, Kwon — a Stanford University-trained engineer — started Terraform Labs, aiming to transform modern financial systems. That year, he created the Luna cryptocurrency. In 2020, the company started selling TerraUSD, calling it a stablecoin. (These coins typically peg their value to a safer asset, like the U.S. dollar.)
Unlike other stablecoins on the market, Kwon’s TerraUSD was a riskier project, experts said. It was not backed by a reserve asset, like cash. Rather, it used an algorithm to maintain its value of around $1 by linking it to the supply of Luna currency.
For a time, the Luna cryptocurrency skyrocketed in value, creating a community called “Lunatics.” In early April, it reached slightly over $116 in value. But in early May, for reasons that are still unclear, cryptocurrency investors started dumping TerraUSD in droves, causing it to lose its peg to the dollar, and spiraling Luna’s value out of control.
In the following days, the value of Luna and TerraUSD kept plummeting, ultimately losing $60 billion in value and causing over $500 billion in losses to the broader cryptocurrency market, industry data shows.
Numerous investors were furious, posting on sites like Reddit, Discord and Twitter, about how they put all their savings into Luna and TerraUSD only to see it vanish in days. Some posted about their intention to kill themselves. In Taiwan, media reports indicate a man killed himself after seeing $2 million in Luna currency plummet to roughly $1,000.
But last week, amid fierce scrutiny from lawmakers and crypto industry critics, Terraform Labs announced its plans to launch another cryptocurrency as part of its “revival strategy.”
Terraform Labs said it would “airdrop” or provide new Luna tokens to many people who lost money at the rate of 1.03 Luna coins for every Luna Classic they held, the company said.
A number of cryptocurrency investors voiced their anger and intention to not hold onto the new coin.
Matt Hougan, the chief investment officer of crypto asset management firm Bitwise, said his company has no intention of investing in the new coin. “We wouldn’t touch Luna 2.0 with a 10-foot pole,” he said in an interview.
Hougan said he does not believe stablecoins that use algorithms to keep their value can work. Rather, they need to be backed by an asset. He also believes that the new Luna coin will do little to resuscitate Kwon and Terraform Lab’s reputation within the broader community of crypto investors.
“The collapse thoroughly damaged confidence in the team,” he said. “I suspect there’s just no coming back from it.”
Hougan, however, said there could be a silver lining. Similar to 2018, when there were numerous cryptocurrency scams around initial coin offerings that prompted government scrutiny, he believes the same might happen with stablecoin regulation in the coming months.
“I suspect what comes out of this process is more regulations on the stablecoin front,” he said. “More enforcement actions from the SEC. And a stronger crypto industry as a result.”
Meanwhile, White, of Web 3 Is Going Just Great, said Kwon’s ability to mint a new cryptocurrency so soon after his previous project failed so prominently is a failure of the broader regulatory and enforcement mechanism in the crypto world. “You can just keep doing what he’s doing,” she added. “And that’s exactly what he’s doing.”
Still, she remains doubtful any broad action will happen against Kwon, even though South Korean and American regulators are looking into the collapse.
“It strikes me as unlikely that they would take any sort of broad action against these types of things,” she said. “Or any action that would actually be more impactful than just sort of whack-a-mole.”
