The creators of Terra and Luna are reviving cryptocurrencies, and the critics are furious

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When two cryptocurrencies crashed about three weeks ago, the effects were devastating. Their collapse caused over $500 billion in losses to the broader crypto market. Many investors have seen their savings evaporate. Others contemplated suicide. People have called for criminal investigations into the company behind it all and government regulation for the wider market.

But now the team behind the failed plays is back. On Saturday, Terraform Labs, the startup behind TerraUSD and its sister cryptocurrency Luna, whose value has fallen to near zero, began trading a new digital coin that is part of their relaunch strategy, called Luna 2.0.

“A chance to rise from the ashes,” wrote Do Kwon, founder of Terraform Labs in his projects announcing the new cryptocurrency.

The coin replaces the old Luna cryptocurrency and trades under its ticker symbol, LUNA. Investors who lost money in previous Terraform Labs coins can get new tokens for free, based on a ratio determined by the company. The old Luna coin can still be traded, but under a new name, called Luna Classic. It is listed as LUNC on crypto exchanges.

The new Luna coin got off to a rocky start, plummeting over 75% in value in its first few hours and recovering some in the following days. As of Tuesday night, the coin was trading just above $8.50 – roughly half the price it started at, according to Coin Geckoa website that tracks cryptocurrency prices.

But amid its ups and downs, the post has drawn scrutiny from analysts, investors and cryptocurrency critics. This highlights a larger problem with the cryptocurrency market, they said: Companies can sell whatever they want without worrying about regulation or enforcement, which puts investors of all the most risky days.

“He’s the little guy we sell false promises to [and] who is completely torn about this,” said Molly White, a software developer who runs the website. Web 3 is going great. “It’s just a huge failure on the part of regulators.”

A spokesperson for Terraform Labs said the decision to launch a new cryptocurrency was made with broad support from its community and the company is looking forward to what the future holds.

In 2018, Kwon – an engineer trained at Stanford University – launched Terraform Labs, with the aim of transforming modern financial systems. That year, he created the Luna cryptocurrency. In 2020, the company started selling TerraUSD, calling it a stablecoin. (These coins usually peg their value to a safer asset, like the US dollar.)

Unlike other stablecoins in the market, Kwon’s TerraUSD was a riskier venture, experts said. It was not backed by a reserve asset, such as cash. Instead, it used an algorithm to maintain its value around $1 by linking it to the Luna coin offering.

For a time, the value of the Luna cryptocurrency skyrocketed, creating a community called “Lunatics”. By early April, it was just over $116 in value. But in early May, for reasons that are still unclear, cryptocurrency investors began dumping TerraUSD en masse, causing it to lose its dollar peg and send Luna’s value spiraling out of control.

In the following days, the value of Luna and TerraUSD continued to fall, eventually losing $60 billion in value and causing over $500 billion in losses in the broader cryptocurrency market, according to data from industry.

Many investors were furious, posting on sites like Reddit, Discord, and Twitter, about how they put all their savings into Luna and TerraUSD only to see them disappear within days. Some have announced their intention to commit suicide. In Taiwan, media reports report that a man committed suicide after watching $2 million in Luna currency drop to around $1,000.

But last week, amid intense scrutiny from lawmakers and crypto industry critics, Terraform Labs announced plans to launch another cryptocurrency as part of its “relaunch strategy.” “.

Terraform Labs said it would “drop” or provide new Luna Tokens to many people who were losing money at the rate of 1.03 Luna Coins for each Classic Luna they held, the company said.

A number of cryptocurrency investors have expressed their anger and intent to do not hold the new currency.

Matt Hougan, chief investment officer of crypto asset management firm Bitwise, said his firm has no plans to invest in the new coin. “We wouldn’t hit Luna 2.0 with a 10ft pole,” he said in an interview.

Hougan said he doesn’t believe stablecoins that use algorithms to hold their value can work. Rather, they must be backed by an asset. He also believes that the new Luna coin will do little to resurrect the reputation of Kwon and Terraform Lab within the broader crypto investing community.

“The collapse has completely damaged the confidence in the team,” he said. “I suspect there’s just no going back.”

Hougan, however, said there might be a silver lining. Similar to 2018, when there were numerous cryptocurrency scams around initial coin offerings that drew government scrutiny, he believes the same could happen with stablecoin regulation in the coming months.

“I suspect what comes out of this process is more regulations on the stablecoin front,” he said. “More enforcement actions from the SEC. And a stronger crypto industry as a result.

Meanwhile, Web 3 Is Going Just Great’s White said Kwon’s ability to create a new cryptocurrency so soon after his previous project failed is a failure of the regulatory mechanism and wider application in the world of cryptography. “You can just keep doing what he’s doing,” she added. “And that’s exactly what he does.”

Still, she doubts any major action will happen against Kwon, even as South Korean and US regulators are investigating the meltdown.

“It seems unlikely to me that they will take any major action against this sort of thing,” she said. “Or any action that would actually have more impact than some kind of mole swiping.”

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