close
close

No, Terra Classic isn’t $1.here’s why

important point

  • Luna Classic plans to implement a new 1.2% transaction tax burn mechanism.
  • LUNC, the failed project’s native coin, rose 171% in a week.
  • However, new investors should temper their expectations that the coin will eventually hit $1.

share this article

The Terra Classic community plans to start burning more LUNC, but traders should be careful not to burn themselves.

The return of Terra Classic

Terra Classic is trying another run in the right place, thanks to the support from the community.

When the UST stablecoin collapsed in May, many thought there was no hope left for Terra. Do Kwon, the notorious CEO of Terraform Labs, quickly moved to establish his new Terra blockchain, relegating his failures to the name “Luna Classic” and putting his coin on the new chain’s native LUNA rebranded under his ticker.

However, since Terra’s premature demise, efforts to revive the original blockchain have progressed slowly. In June, a proposal to burn some of Terra Classic transaction fees and increase validator rewards was abandoned by Terraform Labs, indicating that there is still motivation to develop the chain. I was. Another proposal to start burning his 1.2% of all tokens traded also passed a community vote, but there were no details on how such an idea would be implemented.

All the while, Terra Classic’s native coin, LUNC, continued to trade. Volatility was high, but not entirely unexpected given the low liquidity. The small number of active developers in the Terra Classic ecosystem was enough to fuel speculation. As is often the case with crypto tokens that trade for fractions of a cent, hope was born that LUNC he traded for a cent a day. for the more ambitious (read: delusions), dollars. Such a move would put LUNC’s market cap in the trillions of dollars, a fact the heavyweight refused to acknowledge.

To this day, a recent suggestion from Terra community member Edward Kim has rekindled my enthusiasm for Terra Classic. Kim’s proposal shows a viable path to introduce his 1.2% burn tax on all on-chain transactions. In a post on the Terra Classic forums, he describes the pros and cons of such an update and solicits discussion from other community members. In response, LUNC hit a new local peak, trading at its highest level since the collapse in May.

But what exactly are the burning and taxing of Luna Classic transactions trying to achieve? How can the community impose taxes on centralized exchanges? These are just a few of the questions the community will need to address in preparation for an event that can cause significant volatility.

Burn your tokens and make money?

Writing a token is an easy concept to understand. If the supply of something decreases but the demand remains the same, the price people are willing to pay will increase. It is no coincidence that many of the most popular and widely adopted crypto projects incorporate write mechanisms into their tokennomics. The Shiba Inu developer regularly burns part of the supply, and his BNB on Binance also does a quarterly token burn, much to the applause of its owners.

However, in many cases, burning tokens has little impact on actual supply and demand metrics. In the case of BNB, almost everything that burns comes from the reserves of tokens that the exchange has held since its launch. It would make a good headline to advertise that Binance burned millions of dollars worth of his BNB, but in reality those tokens were never in circulation. Therefore, it should come as no surprise that such events have historically had no effect on the price of BNB.

What token burn accomplishes, however, is create a powerful narrative that even the most novice crypto investor can understand and support. is not a problem. Well-promoted token burns often cause the price to go up anyway, as people buy in anticipation of a dwindling supply.

In the case of Luna Classic, the planned token burn tax could do nothing but create a good narrative to attract naive investors. The majority of LUNC trading takes place off-chain on centralized exchanges such as Binance, Kucoin and Gate.io. So even if the Terra Classic community successfully implemented his 1.2% burn tax on transactions, only a small fraction of his LUNC would end up being burned. Many members of the LUNC community have petitioned exchanges like Binance to introduce a burn tax, but it seems highly unlikely they will do so.

It’s also worth noting that since Terra Classic re-enabled staking earlier this year, large holders and validators have taken advantage of its oversized staking rewards. Since the collapse of the chain, few people have bothered to delegate LUNC to validators, so the rewards are distributed among a handful of people, yielding an average annual return of over 37%. These early stakers have a fully loaded bag of Luna Classic’s upcoming tokens ready to dump to new investors who are confident his burn will shrink supply and send it to the dollar. .

After all, there’s little fundamental reason why Luna Classic is rated so highly, even if it’s for a fraction of a cent. There is no reason for serious developers to start building on the chain, and those currently involved seem to see it more as a hobby than a serious investment. That doesn’t mean it can’t be drawn, but LUNC could just as easily plummet if those pushing the price decided to fly ship. Attention gamblers out there: Don’t realize you’re holding a bag when the music stops.

Disclosure: At the time of writing this article, the author owned ETH and several other cryptocurrencies.

share this article

Leave a Comment