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Collapse of Terra Blockchain Ecosystem Forces Talent Migration

4 minutes read

At the peak of the 2022 bull market, the Terra ecosystem was thriving with talent and innovation. The native blockchain token Terra had made its way into the top 10 cryptocurrencies by total market capitalization. The protocols were building the next iteration of a super cycle that seemed to never end.

Terraform Labs created Terra in the midst of the 2018 crypto market crash and built it through the bear market. The main draw and glory of the Terra ecosystem came from their offering of the best returns in decentralized finance (DeFi), with up to 20% return on its stablecoin through the Anchor protocol.

As of March 2022, Terra had a total of 73 projects built in the ecosystem. The team’s ambition was to integrate at least 87 additional projects by the end of the year. Terra was becoming a strong competitor to BNB Chain, Solana, Cardano, Avalanche and other layer 1 blockchain infrastructures in their quest to gain market share from the current leader, Ethereum.

Being a blockchain built on the Cosmos network, Terra could evolve and interact with other blockchains through the Interblockchain (IBC) communication protocol. The bull market hype was attracting liquidity and Terra was benefiting from users’ appetite for new market opportunities.

Terra reached over 90% of the total value locked (TVL) of all Cosmos blockchains with over $21 billion in assets in May 2022.

That same month of May will be remembered as the collapse of Terra. The Terra token was supposed to hold the peg of Terra’s algorithmic stablecoin – until it didn’t. Billions of dollars were wiped out of the market in just days and the thriving ecosystem Terra had built was left for dead.

Related: What happened? Terra debacle reveals flaws plaguing the crypto industry

The community was quick to act. Although there has been no attempt to revive the Terra token and its failing peg mechanism to the stablecoin, a new network has been created with the aim of compensating those affected by the crash, not in full , but rather as a symbolic gesture of a community’s resilience. be in Web3.

There are now three different trading tokens to consider in the market: Terra (LUNA) the token of the new networks, Luna Classic (LUC), this is how the token was renamed after the creation of the new network, and TerraUSD Classic (USTC) the failed algorithmic stablecoin previously known as UST.

Currently, LUNC has a market capitalization of $2.8 billion, while LUNA has just over $303 million. The new Terra blockchain has a lower market capitalization than the bankrupt USTC with $415 million.

Where did the talent go after the collapse of Terra?

Suddenly, and with no time to prepare, the projects that had chosen to build on Terra had to make a difficult decision that, to this day, had never happened before, at this scale or in this gravity.

An attempt was made through Terra 2.0 to offset the projects by providing much needed cash to those affected. The grants were distributed on June 17, with half of the tokens available on that date, and the remainder remained locked for a three to six month linear vesting period.

For projects that remained, the Terra 2.0 Emergency Builder Allocation program will unlock a new set of tokens for 35 projects. On September 17, Neptune finance will receive the largest amount of LUNA worth nearly $185,000.

Linear vesting dates for the Terra 2.0 Emergency Builder Allocation program. Source: Coinhall

The last group of 15 projects in this program will receive the tokens on December 17, Astroport will unlock the most with $1.25 million from LUNA, and Leap Wallet will receive the smallest amount of this group with $235,000 from LUNA at the current price of the market.

Since Terra was built off of the Cosmos network, it was a natural migration choice for some of the protocols. The IBC architecture allowed projects to stay in this ecosystem and easily move to a new blockchain.

Not all projects found the idea of ​​staying within Cosmos appealing, as other blockchains began using development grants to attract talent and new projects to their network.

With the Ethereum merger just around the corner, Ethereum Virtual Machine (EVM) enabled blockchains have outdone the rest.

Polygon, an Ethereum sidechain, has successfully onboarded over 48 projects from the Terra ecosystem through Polygon’s multi-million dollar Terra Developer Fund. An effective strategy to attract talent that was unexpectedly available when Terra collapsed in May.

BNB Chain, the EVM-enabled blockchain created by Binance, also pledges to provide investment and support for projects that are considered to migrate to the Terra ecosystem from the BNB Chain Fund, which has $1 billion in funding. investments and subsidies to be distributed among the projects that are deployed. within the BNB Chain ecosystem.

Other networks like VeChain and Kadena have tried unsuccessfully to take advantage of talent migration.

Building a new chapter for projects that have survived

Many great projects and talented people within the ecosystem were pushing for progress and had good intentions in what they were building on Terra. From the ashes of debacle, these talented individuals will continue to build and create tools for the betterment of space as a whole.

Six projects are currently developing the new Terra ecosystem with just over $23 million TVL at the time of writing.

Terra 2 TVL rating. Source: DéfiLlama

Chauncey St. John, Founder of the Angel Protocol, told Cointelegraph, “We have lost a huge chunk of our cash, but we live to fight another day and we will relaunch in the next two weeks,” adding:

“Angel Protocol learned the importance of diversification and looked at how we can do more good as a multi-chain entity. As such, we are launching IBC and EVM compatible hubs.

Lido, the leading liquid staking derivatives protocol known for dominating the Ethereum liquid staking market, also offered its services to LUNA token holders who wanted to stake with them and stay liquid. After the collapse of Terra, the protocol decided to end its operations around LUNA and start a shutdown process for this liquid staking token. There is no known interest from Lido to support Terra 2.0 liquid staking tokens at this time.