Is Terra Classic Halal?

Is Terra Classic Halal?

Terra Classic Quick Facts:

Founders: Daniel Shin and Do Kwon

Date Founded: August 2018

Current Developers: Terraform labs 

Max Supply: None

Ticker: LUNC

Practical Islamic Finance Rating: Uncomfortable.

History

Terra Classic (LUNC), formerly Terra (LUNA) is the first native token of the Terra blockchain released in August 2018.

According to Terra’s founders, the Terra blockchain was a network that enabled the creation of stablecoins in a decentralized fashion that “is both price-stable and growth-driven.” 

The main function of LUNC (Then called LUNA) was to absorb the price deviation of the algorithmic stablecoin — $UST.

The idea was that by using an elastic money supply, the price of the stablecoins could be balanced by introducing supply when the price rose and burning it when the price fell.

The stablecoins cannot be minted without burning the equivalent value in LUNA. This causes LUNA to increase in value (at least in theory) as more stablecoins are minted and the supply of LUNA drops.

In May 2022, the Terra ecosystem was attacked, UST lost its peg to the U.S. dollar, and collapsed. 

The UST stablecoin algorithm created trillions of LUNA tokens and consequently, the token fell in value by more than 99%.

On May 28, 2022, the genesis block of a new chain was launched to conduct future transactions under the name Terra (LUNA), and the original Terra Chain was rebranded as Terra Classic. The original native token — LUNA was renamed LUNA Classic (LUNC). 

Current Utility

As of writing this article, there doesn’t seem to be any utility worth mentioning for Terra Classic.

It is simply the shell of a project that once was.

Despite this, speculation on the price of this token seems to be alive and well.

Some have speculated that upcoming proposals will repeg UST to the U.S. dollar and the utility of LUNC will be restored after improvements to its governing algorithm have been made.

PIF doesn’t see this as plausible. We think algorithmic stablecoins like UST are doomed to stumble from one massive failing to another.

Practical Islamic Finance’s thoughts:

Given PIF views LUNC as simply a vehicle for speculation, we do not see a sharia-supported justification to own, trade, and profit from this token.

That said, to the extent the reader sees realistic prospects for a sharia-supported utility to emerge for LUNC, it may be a legitimate investment for them to make. We just don’t see these prospects as realistic and are acting accordingly.

Comfort Rating

Uncomfortable to invest in from a Halal perspective.

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Sources

Terra Luna Coin Market Cap

Terra Luna White Paper

LUNA Validator Statistics

LUNA Validator Information

LUNA Largest Wallets

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