Terra Luna Classic price up about 400% after token-burn mechanism activation

Against the backdrop of the activation in the Terra Luna Classic network of the v22 update, the price of the native cryptocurrency LUNC has risen by 431% over the past two weeks, according to CoinGecko. The update restored delegation and staking functions to the blockchain, as well as launched a mechanism to burn a portion of transaction fees.

As of writing, the asset is trading near $0.00053. The bulk of daily trading volume is concentrated on exchanges Binance ($1.5 billion), BtcTurk ($0.3 billion) and KuCoin ($0.29 billion).

After KuCoin announced the suspension of accepting margin buy orders for LUNC, trading volume on Binance surged significantly. The latter platform is a major investor in Terraform Labs. 

After the collapse of the Terra ecosystem, Terraform Labs developers released a security-focused patch for the blockchain. The update disabled cross-chain bridges, delegation and staking, the ability to launch new validators, and the swap mechanism for LUNA and UST. 

To resume network operation, the Terra Rebels initiative group presented the v22 update, intended to restore the disabled functions to the blockchain. According to the statement, the update should also lay the groundwork for an effective mechanism to burn a portion of fees. 

On August 26, the team activated v22 — users gained the ability to participate in network governance. The blockchain was endowed with a ‘transaction tax’ of 1.2%; its size may change in the future. The cryptocurrency accrued from these fees is taken out of circulation by the network, exerting deflationary pressure on the LUNC supply.

According to analyst Miles Deutscher, with a trading volume of $1 billion and the tax rate at 1.2%, the blockchain will burn about 120 billion LUNC daily.

11/ For reference, today the trading volume of $LUNC was $1b. If the ecosystem upgrade was already live, this would’ve resulted in a 120B token burn (1.7% of the total supply).

If the same pace maintained for 30 days, 3.6T tokens (~half the total supply) would be burnt.

— Miles Deutscher (@milesdeutscher) September 1, 2022

Edward Kim of Terra Rebels noted that the team cannot impose the tax on off-chain transactions, notably those on centralized platforms. 

“One of the main aims of implementing and enforcing [the burn mechanism] is to show that the community can and will impose a tax. It wants the same to happen on CEX,” he wrote.

Earlier, Binance chief Changpeng Zhao criticised the Terra developers for the absence of an on-chain coin-burn mechanism. 

They don’t even burn for on-chain transactions, right?

— CZ 🔶 Binance (@cz_binance) July 4, 2022

The Terra Rebels initiative has already gained support from some centralized platforms. In particular, KuCoin announced a relevant decision.

Kim also added that the team plans to relaunch the algorithmic stablecoin TerraClassicUSD (USTC). To this end, developers intend to “restructure the bad debt” of the ecosystem.

Terraform Labs launched the Terra 2.0 mainnet in May 2022.

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