The cryptocurrency sector has been exceptionally volatile in recent weeks, with enormous volatility across the board. In the face of the established market leaders, Bitcoin and Ethereum, Terra Classic’s native token, LUNC, is up a stunning 200%.
In reality, the entire Terra ecosystem, including the original and new chains, has recently seen significant volatility, so let’s look into why.
What exactly is Terra Classic?
Before we get into the reasons behind LUNC’s rise, it’s vital to understand Terra Classic.
Earlier this year, the Terra ecosystem experienced significant challenges related to the peg of its algorithmic stablecoin - UST. The latter’s dollar parity was lost. While this may be catastrophic for traditional centralized stablecoins, it was the final nail in the coffin for UST.
This is due to the way it was meant to function. Users may buy LUNA tokens and redeem them for UST at a premium that existed as long as UST was trading below a dollar. This arbitrage worked until there was liquidity, and it was the reason the entire Terra ecosystem crashed. Billions were erased off the market, leaving hundreds of users with severe losses.
Do Kwon devise a rescue strategy that included a chain split in an attempt to save what was left and reconstruct the environment?
On May 16th, he proposed a fork of the current Terra chain, resulting in the formation of two networks. The first would be Terra, the updated version. The original LUNA ticker appears on its token. The second would be Terra Classic, and its native coin would be denoted by the symbol LUNC. Both chains have developers who work on them separately and concurrently.
Why has the LUNC price increased by 200% in two weeks?
After a few months, members of the Terra Classic community are hard at work, suggesting various techniques and bringing features to assist the ecosystem to thrive.
A new staking service went online on the Classic chain on August 27th, and the coin has been climbing ever since.
According to CoinGecko data, LUNC is currently trading at $0.000383, up exactly 200% in the last 14 days. Staking is quite simple: users stake their LUNC with various network validators and earn yield in exchange.
According to StakingRewards data, the current yield is about 38%, whereas running a LUNC validator node yields 42%.
Furthermore, early in August, Terra community member Edward Kim proposed a tax-and-burn mechanism that would impose a 1.2% tax and burn on all LUNC transactions.