What to do with the old LUNA token – Luna Classic (LUNC) – now
The new Terra (LUNA) chain launched last weekend, and many former and current holders of LUNA and TerraUSD (UST) have been airdropped new LUNA tokens. What should these investors do now with the Luna Classic (LUNC) they still hold?
A month ago, a single token of what's now Luna Classic (LUNC) traded for around US$80. A precipitous plunge brought its value to a fraction of a penny today, and it was replaced in its Terra ecosystem last weekend by a new Terra (LUNA).
But Classic is still out there trading; the price spiked Monday before falling back, but it's up 5% in the last 24 hours. Despite the tiny per-token value, CoinGecko puts trading volume at US$160 million in the last 24 hours.
So what should investors who still own some of the trillions of shares of Classic out there do? Here's a look.
How the system failed
Before the Terra (LUNA) ecosystem collapsed last month, the principal function of the LUNA cryptocurrency was to anchor the TerraUSD (UST) algorithmic stablecoin, which was pegged to the US Dollar.
To maintain that peg, LUNA would be created and traded to limit the supply of UST, or burned (permanently destroyed) to mint new UST tokens.
Last month, though, UST lost its peg and the system broke down. UST is virtually worthless, despite the creation of huge amounts of new Luna. LUNA's price crashed right alongside UST, as the asset's market cap dropped by over US$29 billion in just eight days.
Meet the new LUNA
After the dust from the collapse settled, the Terra community voted to launch a new LUNA chain - LUNA 2.0 - and to airdrop these new LUNA tokens to many of the former and present holders of the old LUNA tokens and UST tokens.
On Saturday, May 28, 2022, the new chain launched and LUNA and UST token holders received a portion of their new LUNA tokens. The rest of the new LUNA tokens will be distributed over the course of the next two to four years.
While we still don't know the primary purpose of the new LUNA chain given that there are no plans to develop a new version of UST, the question of what to do with the Luna Classic (LUNC) token, the original LUNA token, looms even larger.
The Ethereum example
Let's look to Ethereum Classic (ETC), the original Ethereum chain, for some insight.
In 2016, the Ethereum ecosystem experienced a hard fork similar to this recent LUNA hard fork after the Ethereum DAO hack. The Ethereum blockchain that most use today is the forked version of the chain. But Ethereum Classic (ETC), the original version, lives on.
Some parties still deploy decentralised applications (dApps) via smart contracts on Ethereum Classic, but exponentially more do so on the Ethereum network.
Because of this, the Ethereum Classic network is far less utilised than the Ethereum network. For this reason, ETC trades more like a highly volatile altcoin than Ether (ETH), the native asset of the Ethereum network, whose price is more stable and whose market cap is much larger.
Put more simply, ETC largely still has value because of the speculator market that surrounds it.
The future of LUNC
LUNC will likely suffer a similar fate, as it has investor interest and users but currently serves no purpose.
It seems unlikely that LUNC will find a purpose anytime soon, either, as LUNA 2.0, the token on the network that the Terra community plans to focus on developing, is in the midst of an identity crisis.
Without UST, LUNA is also mission-less. It will likely take some time for the Terra community to find an objective for LUNA, much less one for LUNC. But new developments will involve LUNA, while LUNC will likely stagnate.
So, sell LUNC if you own enough to generate a substantial amount of cash, or hold and speculate with LUNC if you will.
But keep in mind that for as low as LUNC's price has sunk, it can always sink lower, especially given the token currently has no fundamental value.
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