What is Terra 2.0?
The original Terra project provided algorithmic stablecoins pegged to fiat currencies, with the dollar-pegged UST being the most popular. The blockchain’s native LUNA token was used to stabilise the price of these stablecoins, but during a bank run in May 2022, the algorithmic system was unable to cope with a high volume of liquidations and the prices of both LUNA and UST crashed to almost zero.
Later that month, the original Terra blockchain was rebranded to Terra Classic, with its native token and dollar stablecoin renamed LUNC and USTC respectively. A new Terra blockchain was then launched and the native token of the new chain is now called LUNA. Snapshots of the Terra Classic blockchain taken before and after the attack will be used to allocate airdrops of the new LUNA token.
The new LUNA will be the main staking asset of the Terra 2.0 blockchain. There will not be any stablecoins on Terra 2.0, which will instead provide somewhere for the many Terra-based dApps to migrate and continue their functionality.
Should I buy Terra now?
This is a personal decision but the information in this guide should help you make it. The initial supply of LUNA will be 1 billion, with a default annual inflation rate of about 7% to provide staking rewards. These rewards could incentivise people to buy and stake the new LUNA token, potentially making it more valuable.
The value of LUNC was partly driven by the demand for USTC, which will not affect LUNA as there will be no stablecoins on Terra 2.0. However, staking and the migration of dApps to the new chain could create value for LUNA.
Terra Classic was the second-largest ecosystem in terms of total value locked (TVL) at its peak. The system’s collapse will likely have harmed investor confidence in the project, but if Terra can thrive following the migration of dApps, LUNA may become a strong investment.
Different ways to buy Terra
Terra can be bought in different ways — some people want to invest in it for the long term, while others prefer to trade it on a much shorter timescale. This is a personal choice and what you decide will depend on your own experience, strategy and investment goals.
Buy and hold Terra
If Terra can reestablish itself as a thriving ecosystem of dApps, LUNA may becom popular as a long-term investment. This could be helped by the fact that LUNA can be staked, which means your tokens won’t just be sitting idle while you’re invested. Instead, you can delegate your tokens to a validator and earn regular staking rewards.
Investors should also be mindful of events that could depress the price of LUNA, at least in the short term, such as uncertainty around the migration, market-wide crashes, and the activity of competitor blockchains, especially Ethereum if it successfully rolls out Ethereum 2.0.
Trade Terra
Like most cryptocurrencies, LUNA is far more volatile than traditional financial assets. While this can make investors nervous, it also presents an opportunity for traders. They can take advantage of regular price fluctuations to buy and sell crypto more quickly, making more frequent profits.
Traders don’t even have to hold LUNA — they can trade derivatives to profit from price fluctuations without the hassle of actually owning and custodying LUNA. Available derivatives products include contracts for difference (CFDs), futures, and options. Traders can additionally use leverage to increase profits — but beware that this can also increase losses.
Do I need a wallet?
If you buy LUNA, you will need to keep it somewhere — and there are a range of wallets available. It may be stored somewhere for you automatically by your trading platform when you buy it, but you can always set up your own secure wallet if you want to.
It should be noted that those trading CFDs and other derivatives of LUNA don’t require a wallet as they don’t actually hold any LUNA tokens.
Setting up a wallet
Different wallets provide different features and levels of security, so the amount of LUNA you hold and what you plan to do with it will likely affect whether you decide to set up your own wallet and which type you choose.
Web wallets — These wallets are usually free but also tend to be the least secure. Exchanges and brokerages often provide web wallets, which are very convenient, especially for those with a small amount of LUNA or who will be making frequent trades.
Desktop wallets — Free software wallets that can be downloaded onto desktops, these tend to be a bit more secure than web wallets and are almost as convenient. They are therefore also suitable for small-time LUNA holders and somewhat frequent traders.
Mobile wallets — Another type of free software wallet, these are similar to desktop wallets but are downloaded onto mobiles. Their features and benefits are similar to desktop wallets, with the added convenience of having access to your funds on the move.
Hardware wallets — These physical storage devices are available from Ledger, Trezor, and KeepKey. They can be expensive but users are paying for the strongest possible security. Hardware wallets are ideal for long-term investors with a lot of LUNA.
