The creators of Terra and Luna are relaunching cryptocurrencies, and 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 considered suicide. People have called for criminal investigations of the company behind it all and government regulation for the wider market.

But now the team behind the failed games is back. On Saturday, Terraform Labs, the startup behind TerraUSD and its sister cryptocurrency Luna, whose value has dropped to almost zero, began trading in a new digital currency 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 plans to announce the new cryptocurrency.

The coin replaces the old Luna cryptocurrency and is traded under its ticker symbol, LUNA. Investors who have 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 the Luna Classic. It is listed as LUNC on crypto exchanges.

The new Luna coin got off to a rock-solid start as it fell by over 75% in value in the first few hours and regained some in the following days. As of Tuesday night, the coin traded at just over $ 8.50 – about half the price it started at, according to Coin Gecko, a website that tracks cryptocurrency prices.

But in the midst of its ups and downs, the post has garnered attention from cryptocurrency analysts, investors and critics. This highlights a major problem with the cryptocurrency market, they said: Companies can sell what they want, without worrying about regulation or enforcement, giving investors on all the most risky days.

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

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

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

Unlike other stack coins on the market, Kwons TerraUSD was a more risky venture, experts said. It was not covered 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 while, the value of the Luna cryptocurrency skyrocketed, creating a community called “Lunatics”. In early April, it was just over $ 116 in value. But in early May, cryptocurrency investors, for unclear reasons, began dumping TerraUSD en masse, causing it to lose its dollar bond and send Luna’s value out of control.

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

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

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

Terraform Labs said it would “drop” or give new Luna tokens to many people who lost money at a rate of 1.03 Luna coins for every Luna Classic they have, the company said.

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

Matt Hougan, Chief Investment Officer at crypto asset management firm Bitwise, said his firm has no plans to invest in the new currency. “We would not hit Luna 2.0 with a 10 foot rod,” he said in an interview.

Hougan said he does not believe stablecoins that use algorithms to hold their value can work. Rather, they should be backed by an asset. He also believes the new Luna coin will do little to revive the reputation of Kwon and Terraform Labs within the wider crypto-investment community.

“The collapse has completely damaged the confidence of the team,” he said. “I suppose there’s just no way back.”

Hougan, however, said there could be a silver lining. Similar to 2018, where there were numerous cryptocurrency scams surrounding the first currency deals that pulled the government’s control, he believes the same can happen with stablecoin regulation in the coming months.

“I suppose what comes out of this process is more rules on the stablecoin front,” he said. “More enforcement measures 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 flaw in the regulatory mechanism and wider application in the world of cryptography. “You can just keep doing what he does,” she added. “And that’s exactly what it does.”

Still, she doubts that any major action will be taken against Kwon, even though South Korean and US regulators are studying the meltdown.

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

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