The past couple of weeks has been particularly turbulent within the cryptocurrency industry, filled with tremendous volatility across the board. And the established market leaders in the face of Bitcoin and Ethereum chart mild gains, Terra Classic’s native coin – LUNC – is up a whopping 200%.
As a matter of fact, the entire Terra ecosystem, including the classic chain and the new one, went through some massive volatility recently, so let’s explore the reason why.
What is Terra Classic?
Before we examine the reason for LUNC’s surge, it’s important to know what exactly Terra Classic is.
Earlier this year, the Terra ecosystem went through major issues associated with the peg of its algorithmic stablecoin – UST. The latter lost its dollar parity. And while this might be fatal for regular centralized stablecoins, it was the final nail in the coffin for UST.
This is because of the way it was designed to work. A burning mechanism allowed users to 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 was the cause of the crash of the entire Terra ecosystem. Billions were wiped off the market as hundreds of users were left with devastating losses.
In an attempt to salvage what was left and attempt to rebuild the ecosystem, Do Kwon came up with a rescue plan that included a chain split.
On May 16th, he proposed the fork of the existing Terra chain, hence creating two networks. The first one would be the new version called Terra. Its token carries the original LUNA ticker. The second one would become Terra Classic, and its native cryptocurrency would carry the LUNC ticker. Both chains have developers who work on them independently and coexist.
Why is LUNC Price up 200% in Two Weeks?
Fast forward a couple of months and members of the Terra Classic community are hard at work, proposing various mechanisms and introducing features that are designed to help the ecosystem grow.
On August 27th, a new staking service went live on the Classic chain and the cryptocurrency has been soaring ever since.
At the time of this writing, LUNC is trading at $0.000383, up exactly 200% in the past 14 days, according to data from CoinGecko. The way staking works is fairly simple – users can stake their LUNC with different network validators and receive yield for doing so.
Presently, data from StakingRewards shows that the current yield stands at almost 38%, whereas running a LUNC validator node yields 42%.
In addition, earlier in August, Edward Kim, a Terra community member, had proposed a tax-and-burn mechanism that would see a 1.2% tax and burn on all LUNC transactions.