Terra Luna Classic (LUNC) Burn Tracker
A Terra Luna Classic (LUNC) Burn Tracker is a web-based tool designed to monitor and report on the process of reducing the circulating supply of LUNC tokens. This reduction, known as "burning," is a critical mechanism employed by the LUNC community to address concerns over excess supply and potentially improve the value of individual tokens.
Mechanics of Burning:
There are two primary mechanisms for burning LUNC:
- Manual Burns: These burns involve the deliberate removal of LUNC coins from circulation by sending them to a designated wallet address that is irretrievably locked. This can be done by individual users, exchanges, or the Terra Classic development team.
- Tax Burns: Certain transactions on the Terra Classic blockchain incur a tax, a portion of which is automatically burned, further reducing the total supply.
Importance of Burn Trackers:
LUNC Burn Trackers serve several crucial purposes:
- Transparency: By providing detailed information on individual burn events, including the amount burned, the type of burn (manual or tax), the date and time, and potentially the initiator (for manual burns), burn trackers promote transparency within the LUNC ecosystem.
- Informed Information: By offering real-time data on the burn rate and total amount of LUNC burned, burn trackers empower investors to understand the information regarding the potential future value of LUNC coins.
- Community Engagement: Public burn trackers foster a sense of community engagement by allowing LUNC holders to stay updated on burning activity and potentially participate in discussions surrounding the impact of burning on the token's value.
The Terra Ecosystem Crisis (May 2022):
The Terra ecosystem, a decentralized finance (DeFi) platform, experienced a significant crisis in May 2022. This event centered around the de-pegging of its algorithmic stablecoin, TerraUSD (UST), which lost its intended value of $1 USD.
Factors Contributing to the Depeg:
- UST Depegging Mechanism: Unlike other stablecoins backed by real-world assets, UST relied on an algorithmic mechanism involving its sister token, Luna Classic (LUNC). When the price of UST fell below $1, users could arbitrage by burning LUNC to mint new UST at a discounted rate. This process, however, could create a feedback loop if a large sell-off of UST occurred.
- Potential Attack or Market Forces: The precise trigger for the depeg remains debated. Some speculate a coordinated attack on UST's peg, while others attribute it to broader market forces causing a loss of confidence in UST.
Consequences of the Depeg:
- Mass UST Liquidation: As UST's price dropped below $1, significant liquidation pressure emerged. Users rushed to exit UST, further driving down its price.
- LUNC Hyperinflation: The arbitrage mechanism to maintain the UST peg resulted in the minting of a vast amount of new LUNC coins, inflating the total supply from around 380 million to over 6.5 trillion. This hyperinflation significantly decreased the value of each LUNC coin.
- Ecosystem Crash: The depeg and subsequent events caused a domino effect, leading to a collapse in the price of LUNC and impacting the broader Terra ecosystem. Many cryptocurrency exchanges delisted Luna/UST pairings due to the volatility.
The Beginning of LUNC Burn:
In response to the hyperinflation of LUNC, the community implemented a burning mechanism to reduce the circulating supply and potentially increase the value of remaining coins. This process involves sending LUNC to a designated burn wallet address, effectively removing them forever.
1.2% Burn Tax on Terra Luna Classic (LUNC)
Background:
Following the hyperinflation of Luna Classic (LUNC) in May 2022, the Terra Classic community implemented a 1.2% burn tax as a key strategy to reduce the total supply and potentially increase the value of each LUNC coins. This mechanism involves a 1.2% tax levied on all on-chain transactions within the Terra Classic blockchain.
Implementation:
- Proposal and Vote: A proposal for the 1.2% burn tax, championed by Vegas Morph, was passed through a community governance vote.
- Mechanism: The tax collected from each transaction is automatically sent to a designated burn wallet address, effectively removing the LUNC coins from total supply.
- Launch Date: The 1.2% burn tax went live on the Terra Classic blockchain on September 20, 2022, following a period of development and testing.
Reduction and Debate:
- Reduction to 0.2%: After only 2 weeks of 1.2% burn tax operation, without enough time and data to see whether 1.2% burn tax was effective or not, a subsequent governance vote reduced the burn tax from 1.2% to 0.2%. The proposer projected to reduce burn tax by 1/6, to increase transaction volume more than 6x. However, it was never achieved the 6x as projected. And, not long after, the proposers group left Terra Classic blockchain.
- Increment to 0.5%: After quite some time the 0.2% burn tax kicked in, there was a proposal to increase it up to 0.5%. Since then, the burn tax has been staying at 0.5% until today.
- Burn Tax Stays at 0.5%: After burn tax increased to 0.5%, there were almost 2 dozens of following proposals tried to further increasing the burn tax. However, all of them were voted down in a row. Yet, the same proposers still keep trying to propose the same old proposal like there was no tomorrow. Community already decided, and will still vote the same everytime.
- Ongoing Debate: The future of the burn tax remains a topic of debate within the Terra Classic community.
- Arguments for Continued Burn Tax: Proponents argue that the burn tax, potentially even at a higher rate, remains a necessary tool for reducing the total supply.
- Arguments Against Burn Tax: Critics suggest the burn tax is ineffective in achieving its goals and may even hinder the development of decentralized applications (dApps) on the Terra Classic blockchain. Some propose alternative approaches, such as burning LUNC through repegging UST or increased utility for LUNC coins.
Conclusion of Burn Tax:
The 1.2% burn tax on LUNC represents a significant effort by the Terra Classic community to address the coin's hyperinflation. While its effectiveness and future implementation will never be known to anyone after reduced it to 0.2% too fast. The burn tax reflects the ongoing quest for solutions to restore stability and value to the Terra Classic ecosystem.
Binance and Terra Luna Classic (LUNC) Burning
Following the implementation of a 1.2% burn tax on Luna Classic (LUNC) transactions in September 2022, the Terra Classic community requested that Binance, a major cryptocurrency exchange, participate by burning 1.2% of its off-chain LUNC trading volume.
Community Request and CZ's Response:
- The Terra Classic community proposed that Binance, a significant facilitator of LUNC trading, contribute to the burn efforts by burning 1.2% of its off-chain LUNC trading volume.
- Changpeng Zhao (CZ), CEO of Binance, publicly responded, expressing concerns that a 1.2% burn tax would be too high and potentially stifle LUNC trading activity on the exchange.
Binance's Alternative Solution:
In response to the Terra Luna Classic (LUNC) community's request for increased burning efforts in September 2022, Binance, a major cryptocurrency exchange, implemented a unique program. This program deviated from the community's proposal of a direct burn tax on off-chain trading volume.
- Buyback and Burn: Instead of a direct burn, Binance opted for a buyback and burn approach. They utilize a portion of the trading fees collected from LUNC transactions to repurchase LUNC coins.
- Frequency: This buyback and burn program is reportedly conducted on a monthly basis.
- Uniqueness: As of this writing, Binance reportedly only implements this buyback and burn program for two cryptocurrencies: LUNC and their own token, Binance Coin (BNB). This highlights a degree of commitment towards supporting the LUNC ecosystem.
