Terra validators have halted the blockchain in response to the ongoing LUNA and UST crisis. LUNA has entered a death spiral as UST loses its peg to the dollar. It fell below a penny today. Terra said the network will restart when 2/3 of the voting power comes online. After this week, however, the future of the project is still up in the air.
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Development followed LUNA’s death spiral and fell below 1 cent.
Terra Blockchain Suspended
The Terra blockchain is at a standstill.
Terra blockchain officially stopped at block height 7603700. https://t.co/squ5MZ5VDK
Terra validators have decided to stop the Terra chain in order to prevent a governance attack following a severe inflation of $LUNA and a significant reduction in the cost of the attack.
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
Terraform Labs, the development company behind the ill-fated network, released an update late Thursday confirming that the blockchain halted at block height 7,603,700. The post explained that the network has been suspended to reduce the risk of governance attacks.
One tweet read:
“Terra validators have decided to stop the Terra chain to prevent serious governance attacks $ Luna Inflation and significantly reduced attack costs. ”
Terraform Labs later shared a patch to disable further delegation until validators restart the network. It added that the network will restart when 2/3 of the voting power comes online.
The update comes as Terra’s UST stablecoin continues to struggle to maintain a peg to the U.S. dollar. The algorithmic stablecoin dipped below its expected price for the first time on Saturday and failed to return to its peg this week. At runtime, Terra incorporates a design mechanism that uses LUNA to stabilize the price of UST. Arbitrageurs can burn 1 UST to mint $1 worth of LUNA when the UST price falls below the peg, or burn $1 worth of LUNA when the UST price is above $1. However, UST’s selling pressure intensified this week amid unfavorable market conditions. As a result, LUNA also collapsed and entered a death spiral as UST holders rushed out of their positions. As more and more UST holders began to mint more LUNA, the supply increased dramatically, topping 25 billion tokens today. LUNA fell below 1 cent this afternoon. Just a week ago, it was trading near $80.
Since the price of LUNA is now practically zero, the cost of attacking the network has been greatly reduced. Blockchain’s market cap is now just over $400 million. When LUNA was worth $80, the network was worth about $30 billion.
This week’s devastating events have been described as unprecedented events unlike any other in crypto history. While many algorithmic stablecoin projects have failed in the past, including the Basis Cash project that Terraform Labs CEO Do Kwon allegedly helped create, none has experienced such a dramatic rise and fall as Terra. Terra was once one of the largest layer 1 blockchains in the world, alongside the likes of Solana, Avalanche, and Ethereum, but in just a few weeks Terra has become one of the most high-profile failures in crypto .
Update: As of today around 18:00 UTC, the Terra blockchain has resumed producing blocks.
Disclosure: At the time of writing, the author of this article owns ETH and several other cryptocurrencies.
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