- Terra validators have halted the blockchain in response to the ongoing LUNA and UST crisis.
- Due to UST losing its peg to the dollar, LUNA has entered a death spiral. It broke below one cent today.
- Terra says that the network will be restarted when 2/3 of the voting power comes online. However, after this week, the project’s future is up in the air.
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The development follows LUNA’s death spiral and crash below one cent.
Terra Blockchain on Pause
The Terra blockchain is on standstill.
The Terra blockchain was officially halted at a block height of 7603700.https://t.co/squ5MZ5VDK
Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack.
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
Terraform Labs, the development company behind the ill-fated network, posted an update late Thursday confirming that the blockchain was halted at a block height of 7603700. The post explained that the network had been paused to mitigate the risk of governance attacks.
A tweet read:
“Terra validators have decided to halt the Terra chain to prevent governance attacks following severe $LUNA inflation and a significantly reduced cost of attack.”
Terraform Labs later shared a patch to disable further delegations ahead of validators restarting the network. It added that the network would be restarted when 2/3 of the voting power comes online.
The update comes as Terra’s UST stablecoin continues its struggle to maintain its peg to the dollar. The algorithmic stablecoin first dropped below its intended price Saturday and has failed to return to its peg throughout this week. When it was running, Terra incorporated a design mechanism that used LUNA to stabilize the price of UST. Arbitrageurs could burn 1 UST to mint $1 worth of LUNA when the price UST price fell below peg or burn $1 worth of LUNA when the UST price traded above $1. However, UST experienced intensified selling pressure this week amid adverse market conditions. As a result, LUNA also crashed and entered a death spiral as UST holders rushed to exit their positions. As an increasing number of UST holders started to mint more LUNA, the supply dramatically increased, breaking above 25 billion tokens today. LUNA broke below one cent this afternoon. Just a week ago, it was trading closer to $80.
As the price of LUNA is now effectively trending toward zero, the cost of attacking the network has dramatically decreased. The market cap for the blockchain now sits at just over $400 million. When LUNA was worth $80, the network’s value was about $30 billion.
This week’s wipeout has been described as an unprecedented event unlike any other in crypto history. Although many algorithmic stablecoin projects have failed in the past, including the Basis Cash project that Terraform Labs CEO Do Kwon allegedly helped create, none have had as much of a dramatic rise and fall as Terra. Once one of the world’s biggest Layer 1 blockchains alongside the likes of Solana, Avalanche, and Ethereum, in the space of a few weeks, Terra has become one of crypto’s most spectacular failures.
Update: As of approximately 18:00 UTC today, the Terra blockchain had resumed block production.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.