Terra Restarts Blockchain as LUNA Spirals to Zero

The circulating supply of LUNA tokens is now over 6.5 trillion as the network’s death spiral continues. 

Terra Resumes Block Production 

The Terra network has restarted for the second time in 24 hours. 

The Terra blockchain has resumed block production.

Validators have decided to disable on-chain swaps, and IBC channels are now closed.

Users are encouraged to bridge off-chain assets, such as bETH, to their native chains.

Note: Wormhole bridge is currently unavailable.

— Terra (UST) ? Powered by LUNA ? (@terra_money) May 13, 2022

Terraform Labs, the development company behind the troubled Layer 1 network, posted an update Friday confirming that Terra was producing blocks again. “The Terra blockchain has resumed block production. Validators have decided to disable on-chain swaps, and IBC channels are now closed. Users are encouraged to bridge off-chain assets, such as bETH, to their native chains.” 

It comes after Terra validators halted the network early Friday at a block height of 7607789. It was also halted a few hours before that, at a block height of 7603700, but came back online shortly after. Validators released a patch to disable delegations, and the network restarted when ⅔ of its validators came online. 

The network pauses come after Terra suffered one of the biggest crashes in crypto history this week. Crucial to the Terra network is its algorithmic stablecoin, UST. After UST lost its peg to the dollar last weekend, the network’s LUNA token began to plummet. This is because of the relationship between the two tokens. Terra users can burn UST for $1 worth of LUNA, which theoretically incentivizes arbitrage and is supposed to help UST return to its peg (conversely, users can earn a premium by burning LUNA when UST trades above $1). This week, as UST lost its peg due to a series of large-scale sales, holders tried to exit their positions en masse. This created a death spiral scenario that saw LUNA experience hyperinflation and rapidly lose its value. It tanked 99% several days in a row and now effectively trades at zero. As a result, the network has become much more susceptible to governance attacks, which is why it was paused Thursday. The LUNA supply is now over 6.5 trillion, and UST is worth only $0.10. Last week, the network was worth $30 billion and there were only about 340 million tokens in circulation. 

While the community has declared Terra all but finished, there are rumors of a plan to revive the network in a new form. A developer posting under @stablechen on Twitter said early Friday that the community was “deciding on a new Terra” that would either restore the network to a date before the meltdown, remove Terraform Labs, or establish new tokenomics models for UST and LUNA. Interestingly, Terraform Labs, which oversees Terra’s official Twitter account, has reposted @stablechen’s tweet. He later added that developers had begun rallying to revive the network “with actual decentralized ownership by its users, not Terraform Labs.” Crypto Briefing approached him for comment but had not heard back at press time. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.