LUNC’s 1.2% Tax/Burn is Launched_ Price Is not Affected
[TL; DR]
After the collapse of Terra USD (UST) and LUNA, the Terra network introduced two cryptocurrencies.
The Terra ecosystem also introduced another blockchain,Terra 2.0, which exists alongside Terra Classic (Terra 1.0).
Recently, the Terra blockchain implemented a 1.2% tax on most on-chain transactions.
The burnt process aims to reduce the total supply of LUNC from above 6.9 trillion to 10 billion.
Introduction
There are times when prices of certain cryptocurrencies remain constant or worse still decrease, something which worries investors. In that event, the development teams can institute measures that influence the demand of the tokens through luring more investors or boosting community confidence. Terra, the blockchain that experienced the implosion of its two cryptocurrencies earlier in 2022, introduced a tax on most transactions. The aim is to boost the demand for its cryptocurrency, LUNC.
What is LUNC?
Following the crash of Terra USD and its sister cryptocurrency LUNA in May 2022, the Terra blockchain rechristened its token LUNC. In fact, Terra introduced a new blockchain called Terra.2.0 which exists alongside the old one, which they renamed Terra Classic (LUNC).
The creation of the other Terra blockchain resulted in two cryptocurrencies, LUNA and LUNC. LUNA is the token for the new blockchain, Terra 2.0, while LUNA Classic (LUNC) belongs to the rebranded old blockchain, Terra Classic (Terra 1.0).
The Terra fork is a result of Do Kwon’s (the co-founder of Terra) Terra Ecosystem Revival Plan 2. With this plan, the blockchain distributes the new token among the community members who lost their investments when Terra USD and LUNA collapsed in May. As a fact, the validators, who have governance rights, approved that development.
Source: Banknoteworld
It is worthy noting that there is very little activity on the old blockchain. Also, it is important to understand that the Terra community is, currently, managing LUNC. Therefore, all decisions on LUNC’s development plan come from the community.
However, it is vital to note that LUNA 2.0 will coexist with LUNC. This is because Terra 2.0 will not replace Terra Classic. Instead,Terra 2.0 will host all decentralized applications. In the meantime, the developers are working on developing the applications which enhance the utility of the cryptocurrencies.
The aim of the new cryptocurrency is to create confidence in the entire Terra community which lost much of its savings due to the crashing of the sister cryptocurrencies earlier this year.
The tax Burn
Some of the community members who received the LUNC airdrop kept it, waiting for its price to rise. As a result, many of the members called for a burn with the aim of initiating an increase in its price. This is because a burn reduces a token’s circulating supply, creating deflationary pressure.
The community proposed a tax for all the on-chain LUNC. The tax was discussed in the proposals 3568 and 4159, aimed at introducing a 1.2% tax/ burn and distribution. The tax or burn applies to most on-chain activities such as sending of the coins. However, there will be no tax on off-chain activities.
This tax applies to the blockchain’s coins namely LUNC and USTC. However, there are various activities that are non-taxed such as staking, swapping and transactions dealing with governance. Also, there is no tax on withdrawals of validator rewards.
As pointed above, all the transactions involving selling and buying of LUNC and USTC attract a tax of 1.2%. In other words, the system burns 1.2% of the total value of these transactions. Notably, the burn process takes place soon after every related transaction.
The system will disable the burn mechanism when the total LUNC supply is reduced to 10 billion LUNC. Currently, the total supply of LUNC is 6.9 trillion.
The progress of the LUNC burnt process
On September 21, the Terra ecosystem implemented the tax burn through block 9,475,200, putting into effect the proposals 3568 and 4159. This will result in a 99.82% decrease in LUNC’s total supply.
Already, the burning process is in progress. According to Terrarity, a firm that offers a ranking system of rare digital assets like non-fungible tokens (NFTs), over 6,343,559,080 LUNC, about 0.092% of the total supply, have been burnt. This translates to an average burnt rate of 335,660,490 per day.
Source: Terrarity
You can see how the burning process has progressed, so far, in the graph below.
Source: Terrarity
Nonetheless, the pace of burning is lower than what the community expects. According to Terrarity, with the current burnt rate, only about 113 billion LUNC will be destroyed during the whole year. On the contrary, the community expects a total burnt of 1 trillion LUNC within a year.
The anticipated impact of LUNC burnt
Burning of LUNC is likely to increase its demand and value. Its demand may increase due to a rise in investor and community confidence. In other words, the burning process creates momentum for the recovery of LUNC.
The decrease in the supply of LUNC creates deflationary pressure. In the event that the demand of the coin increases while its supply decreases, we anticipate a rise in its price.
How to buy LUNC?
LUNC is available at various cryptocurrencies including Gate.io. infact, at Gate.io, Individuals can acquire cryptocurrencies in several ways. First, you can purchase them using your credit card such as MasterCard or Visa Card.
Second, an individual can use bank transfer to buy any cryptocurrency. If you cannot purchase the exact cryptocurrency you require through this facility you buy any of the major cryptocurrencies such as USDT and convert them to any other token. For example, you can convert BTC to LUNC.
Users can also purchase LUNC and other cryptocurrencies on Gate.io using the P2P facility. In this case, an individual pays money to another Gate.io account holder. Once the payment is settled the seller contacts Gate.io to facilitate the transfer of the cryptocurrency to the buyer.
Conclusion
Terra 2.0 implemented a tax/burnt process to reduce the supply of LUNC. The community anticipates that the price of the token will increase as the total supply decreases. Already, over 6,343,559,080 LUNC have been burnt. The burnt process will continue until LUNC’s total supply drops to 10 billion.
Author: Mashell C., Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
