Terra (LUNA) is the Terra protocol’s native staking token. Luna is used for governance and mining. Users stake LUNA to validators who record and verify transactions on the blockchain in exchange for rewards from transaction fees. ^[2]​

LUNA token was relaunched in May 2022, after the collapse of the previous version, LUNA Classic (LUNC). ^[7]​^[8]​

Luna (LUNC) Crypto Crash

Initially, TerraUSD (UST) and LUNA were created as sister coins on the Terra​ blockchain. UST was an algorithmic stablecoin held to its peg not by reserves, but by a mint-and-burn arbitrage with LUNA: 1 UST was always redeemable for $1 of newly-minted LUNA, and vice versa. LUNA was the shock absorber — and the entire system depended on its market cap staying large enough to absorb volatility.

The Anchor Trap

The engine of UST demand was Anchor Protocol, which offered a near-fixed 19.5% APY on UST deposits. At its peak, roughly 75% of all UST in existence was parked in Anchor — chasing a yield that borrowers couldn't come close to funding.

The Break

By early May 2022, Anchor's yield reserve was visibly draining, making the subsidy publicly indefensible, and large UST holders were preparing to exit.

On May 7th, 2022, roughly $2 billion of UST was pulled from Anchor and sold, causing UST to crack to $0.91, breaking the peg. With 75% of UST in Anchor for an unsustainable yield, the system was a bank run waiting to happen; May 7th was the day confidence failed. ^[10]​

The Death Spiral

The arbitrage built to defend UST became the mechanism that destroyed it. Holders redeemed UST for $1 of fresh LUNA at the protocol rate and immediately sold the LUNA into a collapsing market. More redemptions printed more LUNA. More LUNA crushed the price. A lower LUNA price meant even more had to be minted for the next redemption.

In five days, LUNA's supply exploded from 345 million to 3.47 billion tokens. The price went from roughly 18 billion to $770 million by month's end.

Major exchanges delisted LUNA and UST pairs within days. The original LUNA was worthless — clearing the way for the chain's relaunch as Terra 2.0. ^[3]​^[11]

Luna Crypto Crash: The Aftermath

Following the crash, several crypto exchanges such as Binance delisted Luna and UST pairings. Trading suspensions were also prevalent in the lead-up to the weekend. A Luna Coinbase listing, previously set for launch by the end of June, was also quietly pulled. ^[10]​

​Do Kwon, CEO of Terra Luna, published a recovery plan for Luna, which had a temporary effect on the overall sentiment. Luna briefly rose to 1 mark once again. It has since plummeted below 1 cent. Luna was abandoned after the drop, with Terra launching a new chain and new coin - Luna 2.0. The old Luna was rebranded as Terra Classic known as LUNC.^[9]​

Luna 2.0

On 28 May 2022, following the Luna crypto crash, Terra 2.0, a new form of the blockchain and the LUNA cryptocurrency, was launched. The new form of LUNA, which sees its original version rebranded as terra classic (LUNC), was airdropped to holders. ^[4]​

Airdrop Distribution

The Luna 2.0 airdrop's primary purpose was to compensate people who held the original version of the coin before it crashed on May 7, 2022. The eligibility of LUNA rewards was based on the types of tokens held on the Terra Classic chain, the length of time the tokens were held (based on Pre-Attack and Post-Attack snapshots), and the number of tokens held. ^[4]​

The first airdrop, Genesis, took place on May 27th, 2022. LUNA has a total supply of 1 billion tokens allocated according to the following distribution:

Community pool allocation: 30% (300 million)

• Controlled by staked governance.
• 10% earmarked for developers.

Pre-attack LUNA holders airdrop: 35% (350 million)

• Including bonded, unbonding, and staking derivatives.
• For wallets with less than 10k Luna: 30% unlocked at genesis; 70% vested over 2 years with 6-month cliff.
• For wallets with less than 1 million Luna: 1-year cliff, 2-year vesting thereafter.
• For wallets with more than 1 million Luna: 1-year cliff, 4-year vesting thereafter.

Pre-attack UST holders airdrop: 10% (100 million)

• 500K whale cap - covers up to 99.7% of all holders, but only 26.72% of aUST.
• 30% unlocked at genesis; 70% vested over 2 years thereafter with a 6-month cliff.

Post-attack LUNA holders airdrop: 10% (100 million)

• Including bonded, unbonding, and staking derivatives.
• 30% unlocked at genesis; 70% vested over 2 years thereafter with a 6-month cliff.

Post-attack UST holders airdrop: 15% (150 million)

• 30% unlocked at genesis; 70% vested over 2 years thereafter with a 6-month cliff. ^[2][6]

Tokenomics

When the supply of LUNA exceeds 1 billion, the protocol initiates a mechanism to burn LUNA tokens until the supply returns to the equilibrium level. Additionally, the protocol mints new LUNA tokens according to its algorithm to maintain the stability of Terra stablecoins' price. ^[12]​

LUNA was first made available for purchase in a private token sale in August 2018 for initial investors, which included major exchanges such as Binance, and OKX, and raised Terra $32 million. ^[12]​

Of the 385 million LUNA minted for the sale, 10% was reserved for Terraform Labs, 20% for employees and project contributors, 20% for the Terra Alliance, 20% for price stability reserves, 26% for project backers, and 4% for genesis liquidity. ^[12]​

LUNA Utility

• LUNA is used to mine Terra transactions through staking.
• It is used to ensure the price stability of Terra stablecoins.
• It is used to provide incentives for the platform’s blockchain validators.
• LUNA is used to provide collateral for the purpose of stabilizing the price of Terra-based stablecoin. ^[2]

Staking

Staking is the process of bonding LUNA to a validator in exchange for staking rewards. The Terra protocol only allows the top 130 validators to participate in consensus. A validator's rank is determined by their stake or the total amount of Luna bonded to them. Although validators can bond Luna to themselves, they mainly amass larger stakes from delegators. Validators with larger stakes get chosen more often to propose new blocks and earn proportionally more rewards. ^[2]​

Phases of Luna

LUNA exists in the following three phases:

• Unbonded: Luna that can be freely traded and is not staked to a validator.
• Bonded: Luna that is staked to a validator. Bonded Luna accrues staking rewards. Luna bonded to validators in Station can’t be traded freely.
• Unbonding: Luna that is in the process of becoming unbonded from a validator and does not accrue rewards. This process takes 21 days to complete. ^[2]