New LUNA Coin Surges While Terra Controversy Escalates

The Terra token has approximately doubled in price two days after its launch, even as controversy surrounding Terra and the activities of its founders continues to grow. 

Terra airdropped Terra 2.0’s LUNA to holders of the network tokens of the fallen Terra Classic chain – what’s now known as Luna Classic (LUNC), and the network’s defunct native stablecoin, UST.

The new LUNA token has doubled in value since May 29, last changing hands for $8.50, according to CoinGecko. LUNA has pulled back from a high of $11.45 earlier today.

LUNC’s market cap is now $844M, a fraction of its $1.9B market cap in early May, just before UST lost its peg to the U.S. dollar.

Both LUNA and UST crashed together. To incentivize arbitrageurs, UST’s developers had hardcoded UST to be redeemable for $1 worth of LUNA regardless of UST’s price. So when UST crashed, the run on LUNA drove the network price into an aggressive death spiral.

The new airdrop distributes tokens according to a two-year vesting schedule, and only 30% of the token’s supply is currently in circulation. Twitter user Cephii1 commented, “not much $LUNA circulating supply actually available… how crazy are people going to run it up?”

The airdrop also copped flak for its distribution. On May 31, Terra tweeted that some users received less LUNA from the airdrop than they expected. Ashwsbreal tweeted, “lost $300k in $LUNA. Got an airdrop of $29. Thank you Do Kwon and team.” Terra said it’s working on a solution.

The botched LUNA distribution may have been the result of its rushed execution. Terra critic and purported insider FatManTerra shared a tweet appearing to show chatlogs revealing that Terra founder Do Kwon prioritized the airdrop’s speed above all else.

“I think any reasonable distribution is fine tbh,” Do Kwon allegedly posted. “The most important thing is to get something launched. It almost doesn’t matter how one designs it. We lose community every day we delay.”

Other revelations continue to spook investors. 

On May 27, FatManTerra unearthed a $90M exploit targeting the network’s Mirror Protocol that had gone unnoticed since October of last year. Blockchain forensics firm BlockSec also corroborated the exploit. 

On May 29, a Terra community member shared transaction data indicating that the protocol is again under attack.

They posted that Mirror had mistakenly hardcoded the value of LUNC to track the new LUNA’s price. While LUNA last traded for more than $9, LUNC is worth about one-hundredth of a cent. This allows opportunistic users to use LUNC as collateral to borrow much more than they should be able to.. 

FatManTerra estimated that $1.3M worth of assets could be withdrawn from the platform against just $1,000 worth of LUNC. They noted that traders have drained Mirror’s mBTC, mETH, mDOT, and mGLXY pools, totaling more than $2M in withdrawals.

In yet another blow to Terra, Korean media alleged that Terra’s executives formed the company Kernel Labs, a purported technology incubator, to avoid taxes in the country. Local media claimed that many Terra developers were hired by Kernel, noting the country’s tax authorities flagged a $4.8M transfer from Terraform Labs to Kernel Labs’ CEO last year.