Crypto: Terra lists Luna 2.0 token after stablecoin collapse

Yahoo Finance’s David Hollerith joins the Live show to discuss Terra’s new edition of Luna, volatility, and the outlook for cryptocurrency.

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BRIAN CHEUNG: Terra-- apparently it's back. Failed Luna cryptocurrency is going to reboot as Luna 2.0 apparently. Off to a little bit of a volatile start. For more on this, let's bring in Yahoo Finance's David Hollerith, who's been watching this story.

David, again, this is just something that seems like it's fit for a movie at some point in time. But give us the update on exactly what Luna is and whether or not this 2.0 version is going to make up the wrongs for the many investors that got burned for the first time around.

DAVID HOLLERITH: Yeah, to recap, Brian, after the catastrophic $40 billion collapse in value of the Terra ecosystem earlier this month, Terra returned Friday, launching its Luna 2.0. Now, this is part of the Terra 2.0 ecosystem on its blockchain. But importantly, it does not include an algorithmic stablecoin. So there's nothing-- there's no new part of that.

Now, the cryptocurrency listed at about $18 per coin on Friday. It spiked very quickly within moments of launching and then plummeted by 80% to below $4 within hours of its listing on Friday. Now, within the past 24 hours, there's been about a 48% increase. And it's trading around $10.

So [SCOFFS] there are few things going on here. You know, first, all new cryptocurrencies that are listed have really low levels of liquidity. So they're always intensely volatile. Second, new-- or older investors of Terra, who originally owned the cryptocurrency before and during its, sort of, collapse we saw earlier this month have been airdropped portions of this new cryptocurrency.

Now, it's sort of thought of as compensation. It's also a way to sort of take some of the technological applications that were built on the blockchain and sort of keep them moving, keep them running, so to speak.

Now, that being said, there's-- the way this cryptocurrency gets more liquidity is that cryptocurrency exchanges agreed to relist this new Luna 2.0 token. And every time they do that, you can think of more-- opening access for more buyers, which is kind of interesting. The number one question is like, who are the buyers on the other side of this trade after seeing such a catastrophic loss?

- Yeah, David, it sort of feels like they're just digging themselves into a hole even more. I mean, is that the idea here, to make those investors who lost so much whole? I mean, why resurrect it?

DAVID HOLLERITH: I mean, I think that's absolutely something that is not necessarily stated as the main priority. I think the main priority is to try and salvage the technology, so to speak, and the developers who are working on it. But if you read between the lines, that's clearly what-- I mean, the best sort of thought that could come out of this for investors. I mean, again, $40 billion was lost. And thousands of investors were a part of that.

But I think that being said, when you see these price fluctuations, I think it's all dictated on when you get-- when investors get these new tokens, is it better for them to sell out immediately? Or do they want to wait and see if more exchanges will list them and potentially claw back more of their losses? So again, none of this is financial advice. But I think you're kind of watching this play out.

The other thing I'll point out is the original Luna blockchain is still alive. It's called "Luna Classic" now. And there's like-- there's a whole, sort of, sector or, like, portion of the community which is sort of staying on Luna Classic.

So when you see a cryptocurrency ecosystem sort of diverge like this, it's also sort of not great signs that it's division in numbers, so to speak. So I think as we watch this, it's just important to sort of pay attention to what's going on with exchanges.

And to that point, I'll say that I've spoken with exchange operators. And most of them have sort of attested that the point of relisting the coin, despite its major collapse earlier, has been a way to sort of, hopefully, help investors. But again, they still reap fees from those trades.