Learn with MEXC Blog: Understanding Terra's Collapse and Rebranding

[amberrrr789]

Formerly known as TerraUSD (UST), TerraClassicUSD (USTC) is a decentralized algorithmic stablecoin that runs on the Terra platform. After the May 2022 LUNA/UST crash, the blockchain was rebranded and the token was given a new name.
Background Info about Terra Classic
Understanding the short history of the original Terra blockchain and the Terra Luna crash in May 2022 will help you better grasp Terra Classic.
Stablecoins and Terra
Because of the market's price fluctuation, price stability is needed in order for cryptocurrency investors to trade, exchange, or invest conveniently. Stablecoins, a type of cryptocurrency whose prices are typically linked to conventional fiat currencies, physical assets, or other commodities like US dollars, Euros, metal, etc., are a result of this demand.
Prior to its demise, Terra was an open-source blockchain infrastructure for TerraUSD (UST), an algorithmic stablecoin linked 1:1 to US dollars. In other words, 1 UST should theoretically be equivalent to 1 USD. Users may quickly spend, save, trade, or swap UST thanks to the Terra blockchain.
Terra developed a "mint and burn" mechanism using UST and its unreliable native asset LUNA to approximate this pricing stability. The following is a succinct description of the algorithm:

• Users and arbitrageurs may transmit (burn) 1 UST to the system and receive (mint) $1 worth of LUNA when the price of UST is less than $1.
• Users and arbitrageurs may transmit (burn) $1 worth of LUNA to the system and get (mint) 1 UST when the price of UST is more than $1.

For instance, investors of UST could theoretically decide to burn their holdings in order to create $1 worth of LUNA in order to profit. Due to the decrease in UST market circulation, the price of UST will increase. When the price of UST exceeds $1, holders will burn their LUNA to create UST.
In other words, arbitrage trading strategies that manage UST and LUNA supply and demand should be used to preserve price stability.
Collapse of UST/LUNA
According to popular belief, a substantial quantity of UST was abruptly pumped onto the market in May 2022, which led to a sharp decline in the UST price and the depeg of the stablecoin. Investors became even more terrified as a result, and they began to sell more UST and produce more LUNA, which sharply increased the amount of LUNA in circulation. The death spiral caused LUNA to plummet, and within a week, almost all of its market value was vanished. Following a community vote, the Terra team announced a hard fork to the Terra blockchain in an effort to save the Terra ecosystem and restore investors' faith.
Rebranding and Hard Forking
As a result, Terra Classic became the new name for the original Terra blockchain. Terra stablecoins were renamed TerraClassic stablecoins, and Luna became Luna Classic (LUNC), with all balances on the previous blockchain remaining unchanged. TerraUSD (UST) was among those to become TerraClassicUSD (USTC).
Terra Classic's Ecosystem

Several protocols are now supported by Terra Classic. Wallets that support the transfer of assets and tokens, transactions, interactions with smart contracts, etc. include Terra Station, the official project wallet, and Leap Wallet. All tokens supported by Shuttle, including Terra native tokens, the majority of mAssets, and other token kinds from the Terra ecosystem, can be transferred between chains using Terra Bridge. Along with supporting DEX like Terraswap and Astroport, Terra Classic also powers the NFT project Galactic Punks.