Terra Temporarily Shuts Down Blockchain to Prevent Governance Attack

The Terra blockchain has resumed block production after being stopped for about 2 hours.

The ongoing UST crisis caused an exponential increase in the supply of LUNA to almost 34B tokens as UST holders rush to redeem their tokens, from around 350M on May 9. The resulting runaway inflation saw the price of LUNA plummet 98% to just $0.02 at the time of writing.

LUNA Award. Source: Binance

Governance Attack

Terra uses a Proof-of-Stake consensus mechanism that requires the majority of LUNA tokens to be staked with trustworthy validators that secure the network and process legitimate transactions.

At the current market capitalization of around $700 million, the risk of a governance attack on the blockchain has increased significantly. Such an attack would involve buying a large chunk of LUNA at these depressed prices and delegating it to malicious validators, who could then process transactions to potentially steal all assets held on Terra.

So, the Terra team decided to shut down the blockchain preemptively and deployed a emergency upgrade which disables new delegations. Blockchain was restarted after two-thirds of validators are back online.

The majority of UST and LUNA trades continue to take place on Binance, which has removed LUNA eventually and said he would write off LUNA if it falls below $0.005.

Primary source: https://thedefiant.io/terra-halt-governance-attack/

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Helen D. Jessen