Developer(s) | Terraform Labs |
---|---|
Initial release | 24 April 2019[ citation needed ] |
Website | terra |
Terra is a blockchain protocol and payment platform used for algorithmic stablecoins. The project was created in 2018 by Terraform Labs, a startup co-founded by Do Kwon and Daniel Shin. It was best known for its Terra stablecoin and the associated Luna reserve asset cryptocurrency.
In May 2022, the Terra blockchain was temporarily halted after the collapse of the stablecoin TerraUSD (UST) and Luna, an event that wiped out almost $45 billion in market capitalisation within a week. [1] [2] On January 21, 2024, the company filed for bankruptcy. [3]
Terra is a blockchain that leverages fiat-pegged stablecoins to power a payment system. For consensus, the Terra blockchain uses a proof-of-stake codesign. [4] Several stablecoins are built atop the Terra protocol, [4] including TerraUSD, which was the third largest stablecoin by market capitalisation before its collapse in May 2022. [5] The Terra blockchain has a fully-functional ecosystem of decentralized applications (or DApps), such as Anchor, Mirror, and Pylon, which utilised the stable-coin infrastructure of Terra. [6]
Terra is a group of algorithmic stablecoins, named according to the currencies to which they were pegged—for example, TerraUSD (UST) was pegged to the U.S. dollar. Luna served as the primary backing asset for Terra, also used as a governance token for users to vote on Terra community proposals. UST stablecoins were not backed by U.S. dollars; instead, they were designed to maintain their peg through a complex model called "burn and mint equilibrium". This method uses a two-token system in which one token is supposed to remain stable (UST) while the other (LUNA) is meant to absorb volatility. [7]
The Anchor Protocol was a lending and borrowing protocol built on the Terra chain. Investors who deposited UST in the Anchor Protocol were receiving a 19.45% yield paid out from Terra's reserves. [8] Due to such a high yield, some critics raised concerns that Kwon's stablecoin model could function like a "ginormous Ponzi scheme". [9] [10] [11] Mirror Protocol was another Terra chain project, which designed and offered financial derivatives designed to "mirror" traditional listed stocks. [12]
In 2018, Do Kwon and Daniel Shin (also known as Shin Hyun-sung [13] ) co-founded Terraform Labs in Seoul, South Korea. In 2019, Terraform Labs launched its first cryptocurrency token. [4] Terraform Labs raised more than $200 million from investment firms such as Arrington Capital, Coinbase Ventures, Galaxy Digital and Lightspeed Venture Partners. [14]
In January 2022, the Luna Foundation Guard (LFG) was established as a non-profit based in Singapore, with Do Kwon as director. Terraform Labs allocated a portion of the profit from UST sales to Luna Foundation Guard, to be used as reserves to stabilise the price of UST. As of 7 May, just before UST broke its peg, LFG held reserves of 80,394 bitcoin worth approximately $2.4 billion. Bitcoin was the largest portion of the reserve, though LFG also held various other stablecoins and cryptocurrencies. [15]
In February 2022, Terra and the Washington Nationals Major League Baseball team announced they had entered into a sponsorship agreement which provided stadium and television branding, as well as the rebranding of the Washington Nationals club and lounge to the "Terra Club". The deal was originally proposed to the Terra community by Kwon, referring only to an unnamed "sports franchise in one of the four major American professional sports leagues", and the community agreed to pay $38.15 million for a five-year exclusive partnership. [16]
The founders Kwon and Shin each owned one share of Terraform Labs, giving each founder 50% of the controlling power. Kwon later enlarged his stock pool to eleven shares, giving him 91.7% ownership and Shin the remaining 8.3%. Shin and Chai Corporation, a Terra-ecosystem payment service company that he founded, announced on 18 May 2022 that Shin no longer held any ownership stock in Terraform Labs. However, the Singaporean Account and Corporate Regulatory Authority revealed that Shin still held 8.3% Terraform Labs ownership, and Chai Corporation announced that Shin was not able to "finish liquidating his remaining ownership in time" despite having the same share of ownership as of 18 May. The documents from the Singaporean authority also revealed that as of 18 May, Shin held 51.2% of ownership and Kwon 22.4% of Chai Holdings, the parent company of Chai Corporation. [17] [18] [19]
Beginning on 9 May 2022, the tokens made headlines after UST began to break its peg to the US dollar. Over the next week, the price of UST plunged to 10 cents, [20] while Luna fell to "virtually zero", down from an all-time high of $119.51. [21] Before the crash, Luna was one of the top ten largest cryptocurrencies on the market. [22] The collapse wiped out almost $45 billion of market capitalisation in one week. [1] [23] Terra-Luna operated on a two-coin system protocol that lacked traditional collateral backing. Its collapse was likely triggered by an attack on its liquidity pool and was facilitated by flaws in the underlying blockchain framework. [24]
On 13 May, Terraform Labs temporarily halted the Terra blockchain in response to the falling prices of UST and Luna. [21] [25] Despite the company's attempts to stabilise UST and Luna via its bitcoin and other cryptocurrency reserves from the Luna Foundation Guard, they were unable to reestablish the 1:1 peg of UST to USD. As of 16 May 2022 [update] , blockchain analysts claim that the expenditure of the LFO bitcoin reserves still remains unclear. [26] [27]
Likely causes of the collapse included mass withdrawals from the Anchor Protocol days before the collapse, investor concerns about cryptocurrencies more generally, and a drop in the price of bitcoin. [28] [29] [30] During the collapse, holders converted Terra into Luna via the mint-and-burn system, which caused the price of Luna to collapse due to its increased supply. [31] This in turn destabilised the balancing mechanism between the currencies. [29]
On 25 May, a proposal was approved to reissue a new Luna cryptocurrency and to decouple from and abandon the devalued UST stablecoin. The original blockchain is now called Terra Classic (LUNC), and the original Luna token is called Luna Classic. [32] [33] The new Luna coin is called "Terra 2.0" by investors, and has lost valuation in the opening days of being listed on exchanges. [34] [35] [36]
In an August 2022 interview on the NFTV series Coinage, months after the collapse, Terra founder Do Kwon remarked that his faith in Terra now "seems super irrational". However, he denied that the Terra system was a ponzi scheme. [37]
On 23 March 2023 Kwon attempted to travel to Dubai using false Costa Rican documents, [38] [39] while also carrying false Belgian travel documents, [38] but he was intercepted and arrested at Podgorica Airport in Montenegro. [38] [39] A federal grand jury in Manhattan subsequently laid eight charges against Kwon, including securities fraud, commodities fraud, wire fraud and conspiracy. [40] The following month, KBS News reported that prior to the collapse of TerraUSD, Kwon had sent 9 billion won (worth USD $7 million) to the law firm Kim & Chang. [41]
On January 21, 2024, Terraform Labs declared Chapter 11 bankruptcy in the United States, listed assets and liabilities in the range of $100-$500 million. [3]
Terraform Labs Pte. Ltd., the company behind Terra, is incorporated in Singapore but did not submit an application for a licence under the Payment Services Act according to The Straits Times . [42] It is also not a notified entity, meaning it has not been granted temporary exemption from holding a licence by the Monetary Authority of Singapore. [42] According to documents filed by Kwon at the Supreme Court of Korea's Registry Office, Kwon filed to dissolve the company's Korean entity on 30 April 2022, and was granted approval on 4 May 2022. [43] [ unreliable source? ] [44] [45] [46] [47] [48]
The U.S. Securities and Exchange Commission (SEC) issued a subpoena to Terraform Labs and Kwon in 2021, with specific regard to Terraform Labs' Mirror Protocol, which designed and offered financial derivatives that virtually "mirrored" actual listed stocks. [12] Kwon refused the subpoena, and instead announced he would sue the SEC. [49] Despite his attempts to dispute and avoid investigations from the SEC, a U.S. Court hearing in Manhattan in February 2022 ruled in favour of the SEC's right to continue its investigation into Kwon and Terraform Labs.[ citation needed ] In February 2023, the SEC charged Terraform Labs and Kwon with fraud. [50]
On 18 May, the newly appointed Korean Minister of Justice, Han Dong-hoon, enlarged the economic crimes investigation division of the Seoul Southern District Prosecutor's Office, vowing to "track illegal funds and capital transfers, crack down on tax evasion, audit company finances, compile transaction data, and seize the proceeds of criminal financial activity." [51] On its first day of operation, the Financial and Securities Crimes Joint Investigation Team singled out the Luna and Terra crisis as its first investigation target. [52] [53] [54]
A class action, Patterson v. TerraForm Labs Pte Ltd. et al, was filed against Terraform Labs and others in the United States District Court for the Northern District of California on 17 June 2022. [55] In September 2022, a $56.9 million class action was filed at the High Court of Singapore against Do Kwon, Terraform Labs, Nikolaos Alexandros Platias and the Luna Foundation Guard. [56]
In June 2022, Yonhap News reported that 15 people, including former Terraform developers for the Anchor lending protocol, had been imposed with travel restrictions by the Korean government. [57] On November 29, 2022, an arrest warrant was issued for Daniel Shin by South Korean prosecutors. [58]
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
Ethereum is a decentralized blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. It is open-source software.
Circle is a peer-to-peer payments technology company that now manages stablecoin USDC, a cryptocurrency the value of which is pegged to the U.S. dollar. It was founded by Jeremy Allaire and Sean Neville in October 2013. Circle is headquartered in Boston, Massachusetts. USDC, the second largest stablecoin worldwide, is designed to hold at or near a stable price of $1. The majority of its stablecoin collateral is held in short-term U.S. government securities.
Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc, and is registered in the British Virgin Islands. Bitfinex was founded in 2012. It was originally a peer-to-peer Bitcoin exchange, and later added support for other cryptocurrencies.
Tether is a cryptocurrency stablecoin, launched by the company Tether Limited Inc. in 2014. As of January 2024, Tether's website lists fourteen protocols and blockchains on which Tether has been minted.
A cryptocurrency bubble is a phenomenon where the market increasingly considers the going price of cryptocurrency assets to be inflated against their hypothetical value. The history of cryptocurrency has been marked by several speculative bubbles.
Binance Holdings Ltd., branded Binance, is a global company that operates the largest cryptocurrency exchange in terms of daily trading volume of cryptocurrencies. Binance was founded in 2017 by Changpeng Zhao, a developer who had previously created high-frequency trading software. Binance was initially based in China, then moved to Japan shortly before the Chinese government restricted cryptocurrency companies. Binance subsequently left Japan for Malta and currently has no official company headquarters.
A stablecoin is a type of cryptocurrency where the value of the digital asset is supposed to be pegged to a reference asset, which is either fiat money, exchange-traded commodities, or another cryptocurrency.
Justin Sun is a Chinese-born Grenadian cryptocurrency entrepreneur and business executive. He is the founder of TRON, a blockchain DAO ecosystem ATM system symbol and USDD, an algorithmic stablecoin issued by TRON DAO Reserve. He also works as an advisor to HTX.
TRON is a decentralized, blockchain-based operating system with smart contract functionality, proof-of-stake principles as its consensus algorithm and a cryptocurrency native to the system, known as Tronix (TRX). It was established in March 2014 by Justin Sun and since 2017 has been overseen and supervised by the TRON Foundation, a non-profit organization in Singapore, established in the same year. It is open-source software.
USD Coin (USDC) is a digital stablecoin pegged to the United States dollar. USD Coin is managed by Circle. USDC is issued by a private entity and should not be confused with a central bank digital currency (CBDC).
Paxos Trust Company is a New York–based financial institution and technology company specializing in blockchain. The company's product offerings include a cryptocurrency brokerage service, asset tokenization services, and settlement services. ItBit, a bitcoin exchange run by Paxos, was the first bitcoin exchange to be licensed by the New York State Department of Financial Services, granting the company the ability to be the custodian and exchange for customers in the United States.
Avalanche is a decentralized, open-source proof of stake blockchain with smart contract functionality. AVAX is the native cryptocurrency of the platform.
Decentralized finance offers financial instruments without relying on intermediaries such as brokerages, exchanges, or banks by using smart contracts on a blockchain, mainly Ethereum. DeFi platforms allow people to lend or borrow funds from others, speculate on price movements on assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts. DeFi uses a layered architecture and highly composable building blocks. Some applications promote high-interest rates but are subject to high risk. Coding errors and hacks have been common in DeFi.
Dai is a stablecoin token on the Ethereum blockchain whose value is kept as close to one United States dollar as possible by decentralized parties incentivized by smart contracts to perform actions that affect the token's supply and therefore its price. Dai is maintained and regulated by MakerDAO, a decentralized autonomous organization composed of the owners of its governance token, MKR, who may propose and vote on changes to certain parameters in its smart contracts.
Hodlnaut is a Singapore-based cryptocurrency lending and borrowing platform that lost 69% of the cryptocurrencies that users deposited onto the platform.
Solana is a blockchain platform which uses a proof-of-stake mechanism to provide smart contract functionality. Its native cryptocurrency is SOL.
Kwon Do-Hyung, more commonly known as Do Kwon, is a South Korean former businessman and software engineer. He was the co-founder and CEO of Terraform Labs, the parent company of crashed stablecoin TerraUSD and cryptocurrency Luna. TerraUSD and Luna collapsed in May 2022, wiping out almost $45 billion market capitalization in one week and causing hundreds of billions in losses in the larger crypto market. Kwon faces legal and social pressure regarding his role in the Terra crash. Citizens from various jurisdictions — including South Korea, Singapore, and the United States — are taking legal action against Kwon. On 23 March 2023, Kwon was arrested in Montenegro, while attempting to travel to Dubai using falsified documents. Following his arrest, he was charged by a US federal grand jury of eight counts, including securities fraud, commodities fraud, wire fraud, and conspiracy.
Three Arrows Capital was a Singapore-based cryptocurrency hedge fund which was ordered to liquidate on 27 June 2022 by a court in the British Virgin Islands. It was founded in 2012 by Kyle Davies and Su Zhu. The company borrowed billions of dollars to fund its trading, and according to July 2022 bankruptcy filings, faces $3.5 billion in creditors' claims. The fund appears to have lost in excess of $3 billion over 2021 and 2022, making its collapse one of the largest hedge-fund trading losses of all time.
The Aave Protocol is an open-source, decentralized finance (DeFi) protocol built on the Ethereum blockchain and released in 2020. It is one of the largest cryptocurrency liquidity protocols. The Aave Protocol uses smart contracts to automate processes, including distributing funds and handling collateral.
Terraform Lab's Luna cryptocurrency is now one of the ten largest cryptocurrencies by market capitalization, according to CoinGecko.
The downfall of Luna and TerraUSD offers a case study in crypto hype and who is left holding the bag when it all comes crashing down. Mr. Kwon's rise was enabled by respected financiers who were willing to back highly speculative financial products. Some of those investors sold their Luna and TerraUSD coins early, reaping substantial profits, while retail traders now grapple with devastating losses.
The problem with algorithmic stablecoins is that they fail. They fail because they rely on things they can't control: investor demand; people who will perform the stabilizing arbitrage; and reliable price information. In the specific case of Terra, it seems likely that an unusually large withdrawal knocked the system out of balance. After that, there was a death spiral.
A proposal by the founder of the troubled Terra ecosystem to salvage the project was approved, averting a total collapse of one of the most-watched experiments in decentralized finance ... The process means Terraform Labs is effectively abandoning the stablecoin TerraUSD, or UST, which from now on will only trade on the Terra Classic blockchain as USTC.
Under the approved measure, the original blockchain will split off and be known as Terra Classic, while Luna, which plunged close to zero this month, will be renamed Luna Classic with the ticker LUNC. The new Terra blockchain will start running a coin under the existing Luna name and ticker, and won't include the UST stablecoin. The new Luna will be distributed to previous holders of Luna and UST in a so-called air drop.
Now, luna has a new iteration, which investors are calling Terra 2.0. It is already trading on exchanges including Bybit, Kucoin and Huobi. Binance, the world's largest crypto exchange, says it will list luna on Tuesday.
On May 28, Luna 2.0 tokens entered the market at 15 baht per coin and surged to over 850 baht. The unit then nosedived to 119 baht, a 75% decline on the price recorded on its relaunch day. As of May 30, the coin is stagnant at around 200 baht, according to crypto exchange Bybit.
In addition to having entered the Top 30 of cryptos in the market, on September 8th in 2022 the LUNC cryptocurrency of Terra 2.0 has just surpassed the price of $0.0005.
The Seoul Southern District Prosecutors' Office said Friday that it has kicked off an investigation on Terraform Labs, the organization behind the stablecoin project Terra led by Do Kwon, and assigned the case to its Financial and Securities Crime Joint Investigation Team, a special financial crimes unit brought back recently by the newly appointed justice minister Dong-hoon Han, according to local media.