(Bloomberg) — Terraform Labs restarted the Terra blockchain following a software update to help avoid attacks against the network in the wake of the collapse of its algorithmic stablecoin and the related Luna token that had roiled cryptocurrency markets.
The fix is designed to help avoid so-called governance attacks against its protocol — a way of manipulating the fundamentals of a given blockchain by acquiring enough tokens to force a majority vote.
Following the patch’s release, Terra said earlier that the network would go live again once two-thirds of the voting power belonging to validators came online to finalize the update. In previous outages for blockchain networks like Solana, this process has taken several hours to complete as validators can reside across multiple time zones.
Terra’s UST is one of the world’s largest stablecoins, while its corresponding Luna reached an all-time high of $119 only last month. Its fall has been quick and fast, leaving the wider crypto community at a loss for how this might impact the broader ecosystem.
The halt meant that no transactions occurred on Terra’s blockchain while the system was shut down, forcing the price of its two tokens to stop moving. The value of UST, which uses a complex mix of code and trader incentives to keep its peg to the dollar, was at around 36 cents before the blackout — while Luna, a sister token to UST which helps maintain the former’s price, had fallen close to zero on Thursday, according to data compiled by Bloomberg and CoinGecko.
Developers in Terra’s Discord server speculated that halting its blockchain might be the only solution they had left, after a plan to recapitalize UST by seeking outside funding appeared to fall apart. Terra’s supporting organization, the Luna Foundation Guard, had sought to raise more than $1.5 billion to shore up its token, but backers failed to immediately materialize.
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Sid Powell, chief executive of Maple Finance, said Terra’s community was concerned that an attempt to attack its protocol by using a majority vote could compromise the security of the network — and as the price of Luna decreased, that risk became more likely. Several platforms which rely on the Terra blockchain to operate now also face being switched off, including its own decentralized lender Anchor Protocol.
Around the time of the halt, there was still more than $1.05 billion worth of tokens locked on Anchor, according to data from Defi Llama. Anchor has been the main driver of Terra’s growing value in the crypto sector, thanks to a promised interest rate of up to 20% for traders willing to deposit UST on its platform.
“They’ve made the decision that they can’t run the network security,” said Powell. “It’s bad for crypto because of the reputational damage and sentiment, it’s obviously demoralizing for crypto.”
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