Collapsed ‘stablecoin’ terra to be rebooted in attempt to recover losses | Cryptocurrencies

Terra, the “algorithmic stablecoin” project whose collapse this month prompted a widespread crash of the entire cryptocurrency sector, is being rebooted as “terra 2.0” in a last-ditch attempt to recover investor losses.

However, the new cryptocurrency, which will be launched on Friday morning, will no longer involve any effort to peg its value to the US dollar, in an attempt to avoid the “death spiral” that destroyed the original iteration. The plans were approved by a vote of terra investors, with 65% voting in favour.

Instead, new tokens will be handed out to a broad selection of users who were involved with “terra classic” before and after the crash.

The largest portion of the tokens will be given to people who owned the terra stablecoin or its floating sister currency, Luna, as of 7 May, shortly before terra broke its peg with the US dollar and both currencies’ values spiralled towards zero. As of Wednesday the value of terra had fallen from $1 to nine cents.


What is a stablecoin?


A stablecoin, like the name suggests, is a type of cryptocurrency that is supposed to have a stable value, such as US$1 per token. How they achieve that varies: the largest, such as tether and USD Coin, are effectively banks. They hold large reserves in cash, liquid assets, and other investments, and simply use those reserves to maintain a stable price.

Others, known as “algorithmic stablecoins”, attempt to do the same thing but without any reserves. They have been criticised as effectively being backed by Ponzi schemes, since they require continuous inflows of cash to ensure they don’t collapse.

Stablecoins are an important part of the cryptocurrency ecosystem. They provide a safer place for investors to store capital without going through the hassle of cashing out entirely, and allow assets to be denominated in conventional currency, rather than other extremely volatile tokens.

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The primary goal of the reboot is to ensure that those users, who lost the most money in the crash, have a chance at redemption.

A further quarter of the tokens will be given to those users who hold terra or Luna on Friday morning, in an effort to ensure they are rewarded for their loyalty, if they held it throughout the crash, or for providing exit capital to those who were trying to sell.

Terra’s founder, the charismatic but controversial South Korean entrepreneur Do Kwon, said the motivation for rebooting the currency was to support the wider platform that had built up around terra.

“While UST [the terra stablecoin] has been the central narrative of terra’s growth story over the last year, the distribution of UST has led to the development of one of the strongest developer ecosystems in crypto,” Kwon said.

“The terra ecosystem and its community are worth preserving. Terra’s app ecosystem contains hundreds of developers working on everything from defi to fungible labour markets, state-of-the-art infrastructure and community experience. Although distressed, [terra has] strong brand recognition and a name that almost everyone in the world will have heard about.”

But the relaunch does not guarantee that anyone will actually see a return. If distressed investors, such as the Ukrainian man who lost his entire $10,000 life savings in the crash, are to recover some of their wealth that will require others to be willing to buy in to the rebooted currency.

This news is republished from another source. You can check the original article here

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