How Terra is looking to salvage what's left after its $40 billion explosion

"If I could turn back time.

If I could find a way

I'd take back those words that have hurt you

And you'd stay" - Cher

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After an unprecedented collapse took down the Terra blockchain and its more than $40 billion in market cap, the Terra team and the community are scrambling to figure out how to pick up the pieces and fix what is left in the ashes.

For most busts of epic proportions, there usually isn't much to salvage. In the wake of Bernie Madoff's Ponzi scheme, lawyers and prosecutors tried to make those most impacted whole again. In the wake of the Enron collapse, it wasn't like that company was suddenly going to bounce back to become a bonafide energy behemoth.

In the real world, we all know turning back time to before tragedy struck is impossible. It's why Cher's "If I Could Turn Back Time" is still an absolute banger. But in the world of crypto, there is somewhat of a precedent for turning back time to before tragedy strikes and acting like nothing happened.

In the early days of ethereum, the team had raised $150 million from investors through a token sale. Shortly after, an attacker exploited vulnerabilities in its code and began to drain $60 million in ether. The team had a decision on its hands. In theory, the chain could be "rolled back" to before the exploit and it would be as if the funds were never drained from the wallet. But in order to do so, a majority of the miners on the network had to agree to the plan. Another contingent was not on board, seeing as the main selling point of a blockchain up until that point had always been that transactions were irreversible.

Eventually, the plan was implemented and the chain was split into two in what's called a "hard fork" in 2016. Miners who didn't agree with the decision to undo the attack supported the original chain dubbed Ethereum Classic, while miners on the network who supported the "edited" version of the chain transitioned to mining the new chain from the fork which is the Ethereum blockchain we know today.

So what does this have to do with Terra? Well, the plans being presented by Terra's founder Do Kwon have looked somewhat similar with some key differences.

Unlike Ethereum's hack in 2016, we're not dealing with an isolated attack that moved funds from one wallet to another. It's not as if Terra has one transaction to undo in a vacuum. It was a bunch of people dumping assets on their way to $0. And to further complicate matters, Terra is now in the tough spot of trying to make its community members whole while juggling their competing interests.

As I explained last week, LUNA holders were essentially equity holders that were more open to taking on the risk of volatile moves for larger upside. UST holders, on the other hand, were essentially debt holders who just wanted their UST to stay at $1 and were perfectly content earning a 20% yield. Now, Terra is planning to roll back time to before UST's stablecoin broke from the $1 value it was supposed to hold. Holders on record at that time would get an allocation of 1,000,000,000 new LUNA tokens, and the old chain would be rebranded as Terra Classic (with those tokens being rebranded to LUNC.)

You can read Do Kwon's full proposal on Terra's Agora community forum, but it essentially takes the tough task of getting down to divvying up a share of a less robust network. Almost assuredly, that's not going to make anyone whole. But it may be better than nothing.

At the end of the day, Terra grew to an impressive size of users with more than 4 million installed wallets (note: one user can have multiple wallets.) And sure, most of that was because people could buy Terra's UST "stablecoin" to earn 20% interest. But Terra still had a robust lending environment, payments system, and a number of NFT projects built on its chain. Scrapping the stablecoin element of the chain no doubt dents why LUNA skyrocketed 13,000% in 2021, but salvaging the talent it attracted would be better than seeing everything migrate to other chains like Solana or ethereum.

Or, maybe that's just wishful thinking and LUNA really has lost all its integrity as a brand after its collapse. I honestly don't know how the community reacts here. On the one hand, its underlying tech functioned as perfectly as it was supposed to (market forces taking down the peg of its UST stablecoin aside.) Either way, it will be a very interesting test of just how realistic it is in crypto to try and "turn back time."

Do Kwon's plan will officially be put before the community for acceptance beginning Wednesday. If adopted, the fork could happen as soon as May 27. Before then, there will be a lot of smaller tests to just how much trust remains around both him and Terra. For the plan to succeed, people will need to believe there's a reason to hold these tokens instead of just dumping them immediately. Then there's the question of if any major exchanges would even feel the need to list them as well.

Just as ever, there are a lot of unknowns on how this will go. In my discussions with the team at Terra, including Do Kwon, there have been a lot of sleepless nights trying to work on a solution that works for the largest amount of people.

Stay tuned.