The possibility of a burn tax of 1.2% across all transactions has pushed LUNC’s price up by more than 171% during the past week. Recent efforts to revive the project, however, could simply consist of a sophisticated “pump and dump” plan.
Terra Luna Classic hopes to make a comeback after receiving a lot of support from its fan base.
Since May, when the UST stablecoin collapsed, many individuals have given up on Terra. Do Kwon, the infamous CEO of Terraform Labs, wasted little time in launching a new Terra blockchain, rebranding his prior attempt Luna Classic, and giving the new chain’s native coin the LUNA ticker. And he’d given Terra’s first token a new name: LUNA.
Since Terra’s demise, efforts have been making steady progress to restart the old blockchain, so all is not lost. It’s so difficult since it calls for making so many new blocks.
There was still motivation to expand the network after Terraform Labs abandoned the Terra Classic chain, as seen by a June request to start burning some of the transaction fees and increase validator compensation.
Even though the chain had been abandoned by Terraform Labs, this proposal showed that interest in it was still strong enough to warrant additional work.
Another proposal that garnered widespread support from the community was to immediately begin burning 1.2% of all transferred tokens; however no information on the implementation of this proposal was provided.
The use of LUNC, Terra Classic’s native money, in commerce has continued during this whole period. The high volatility was not completely unexpected given the low liquidity, but it was worrisome nonetheless.
Although there were only a small number of programmers working on Terra Classic projects, the atmosphere was perfect for spreading misinformation.
Many other cryptocurrency tokens are presently trading at a fraction of a cent, thus it was believed that LUNC, too, may someday achieve a price of a penny or, for the more ambitious, a dollar.
This happens all the time with tokens worth cents on the bitcoin market. Despite the fact that such a move would give LUNC a trillion dollar valuation, the company’s most prominent spin doctors dismissed the prospect.
Your capital is at risk.
Implementation Of Burn Tax A Game Changer?
A recent suggestion made by a member of the Terra community named Edward Kim has helped rekindle interest in the Terra Classic game.
The suggestion made by Kim outlines a feasible strategy for imposing a burn tax of 1.2% on all on-chain transactions.
There, he lays out the pros and cons of such an upgrade and invites other Terra Classic forum users to weigh in on the subject.
As a direct result of this, LUNC has reached a new local top and is currently trading at its highest level since the market crash in May.
But what precisely does the burning of Luna Classic transactions and the taxation of them expect to accomplish?
When it comes to centralized exchanges, how will the community be able to enforce the tax?
These are just a handful of the concerns that need to be answered by the Terra Classic community in the run-up to an event that has the potential to cause a large degree of price volatility.
What Exactly Is Burning Tokens All About?
The process of destroying tokens by burning them is a simple one to grasp. It seems to reason that people will be prepared to pay a higher price for something if there is less of it available but there is no change in the amount of demand for it.
It is not a coincidence that a significant number of the most well-known and broadly embraced cryptocurrency projects have incorporated a burn function into their tokenomics.
To the delight of token holders, the creators of Shiba Inu regularly destroy portions of the cryptocurrency’s supply, and Binance’s BNB tokens are likewise destroyed on a quarterly basis.
Burning tokens, on the other hand, has a negligible effect on the real measurements of demand and supply in many contexts.
When it comes to BNB, nearly all of what is burnt originates from a reserve of tokens that the exchange has kept since the platform’s first debut.
When Binance brags that it has destroyed BNB tokens worth millions of dollars, the news makes for a catchy headline; yet, in truth, such tokens were never in circulation to begin with.
It shouldn’t come as a surprise, though, that occurrences of this nature have traditionally had little effect on the price of BNB.
Token burns, on the other hand, are effective at accomplishing one particular goal and that is to create a compelling story that even the most inexperienced crypto investor can comprehend and support.
It makes no difference if a burn mechanism would dramatically reduce the supply of a token, which will cause prices to rise.
People will typically purchase in anticipation of a perceived reduction in supply, which will lead the price to climb regardless of how much hype is generated about a token burn.
What Happens If Luna Incorporates Burn Tax?
Token burn taxes like the one Luna Classic plans to implement are unlikely to do anything beyond attracting the attention of uninformed investors.
Most LUNC trades happen off-chain, on supervised markets like Binance, KuCoin, and Gate.io. This suggests that just a tiny fraction of LUNC would be lost even if the Terra Classic community was able to successfully implement a burn tax of 1.2% on transactions.
Burn taxes have been requested by many in the LUNC community, but it seems unlikely that cryptocurrency exchanges like Binance would implement them anytime soon.
It is also worth noting that, ever since Terra Classic re-enabled staking at the beginning of this year, large holders and validators have been making use of the astronomical staking benefits it provides.
Very few people have taken the time after the chain’s collapse to appoint validators to manage their LUNC.
This means that a smaller group of people will receive a greater share of the total profits, which amounts to an average yearly return of almost 37%.
These pioneer investors are stocked to the gills with tokens they want to unload on new investors who are certain that the upcoming token burn for Luna Classic will cut the supply and drive the price to a dollar.
There is not much of a fundamental reason for the current high worth of Luna Classic, even at a price of a few hundredths of a penny.
Existing participants seem to view it more as a hobby than a serious investment, and there is minimal need for experienced developers to begin creating for the chain.
Although this doesn’t rule out the possibility of a future meteoric rise in LUNC prices, it does raise the possibility that the market might see a significant correction if the people responsible for the recent surge in value decide to cash out.
Final Word: Will Luna Classic Reach The $1 Mark?
According to information provided by CoinMarketCap, the total number of tokens now in circulation that belong to the Luna Classic (LUNC) cryptocurrency amounts to approximately 6.15 trillion.
Even if all 6.15 trillion tokens were to change hands in a single day, this would only bring the total amount of tokens in circulation down to 6.07 trillion, a reduction of only 700 billion tokens.
If LUNC were to reach the $1 mark, the market value of a network that is no longer used by developers to power dApps and that is also no longer maintained by a real developing team that can deliver updates and new features to build the ecosystem might reach over $6 trillion.
If this happened, the total value of the market would increase to almost $6 trillion.
Additionally some data supplied by CMC appears that the vast majority of LUNC transactions take place on regulated marketplaces like Huobi, Binance and Gate.io.
This is true of Bitcoin and all other cryptocurrencies as well. If the community ultimately agrees to embrace the plan, these exchanges may decide to delist the currency since they do not accept or support the implementation of the 1.2% tax.
Binance had informed its user base that effective from September 7, the exchange will suspend LUNC deposits and withdrawals made via the Polygon Network, Ethereum network and BNB Smart Chain without revealing an end date.
After the shutdown rendered the Terra Classic Shuttle Bridge useless, the decision was made to scrap the program.
While users can still use the token for transactions on the Terra Classic network, the validation process for such transactions will take much longer time due to the network’s processing speed having reduced dramatically after the collapse of the ecosystem.
If trading volumes drop as a result of the Shuttle Bridge being shut down, the resulting increase in transaction costs might be significant. Additionally, transaction costs may rise if Binance discontinues allowing trading for LUNC on these exchanges.
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