Terra Classic (LUNC) spites new LUNA, but the interest is waning.
Terra Classic (LUNC), the fallen original Terra coin, is back in the news. From Thursday to Friday, LUNC jumped by 18%, to $0.0001902, the highest since Nov. 11. As with previous price bumps, it most likely happened as Binance implemented the LUNC burn mechanism on trading fees.
What does this mean for the Terra Classic community, and does LUNC have a future?
A Burning Solution to LUNC Hyperinflation
Before, there was no LUNC, but just LUNA token for the Terra blockchain; its supply was just 340 million. After algorithmic stablecoin TerraUSD (UST) started to depeg from the dollar on May 10, LUNA supply exploded to a ridiculous level of 6.5 trillion in just a couple of days, now holding at 5.9 trillion.
That’s because UST was in a dynamic relationship with LUNA to maintain the dollar peg. For example, to mint new UST stablecoins, one would have to burn LUNA and vice-versa. After the algorithmic stablecoin experiment failed, it triggered frenzied cashouts that exponentially ballooned Luna’s circulating supply.
Subsequently, Do Kwon halted Terra blockchain altogether, to later rebrand Terra into Terra 2.0, in which LUNA became Tera Classic (LUNC). From then to now, the Terra community’s primary concern has been to clear that massively inflated bag by appreciating the original tokens.
Binance’s Burning Schedule
After much deliberation and revision, Binance CEO Changpeng Zhao (CZ) announced on Sept. 26 that the exchange would burn all of the trading fees from either LUNC/BUSD or LUNC/USDT pairs for spot and margin trading. Specifically, Binance would collect the fees and convert them into LUNC tokens, which are then sent to a burn address.
“Burning” is just sending tokens to an irretrievable wallet address, meaning they are permanently out of circulation, i.e., burned. This way, the supply of LUNC would eventually decrease in an attempt to revitalize Terra’s ecosystem or at least attempt to restore some customers’ lost wealth. With Binance’s weekly LUNC batches burned, the value briefly pops up each time.
This supply-demand dynamic is similar to the Fed increasing the Dollar Strength Index (DXY) when it ramped up interest rate hikes throughout the year. Yesterday was Binance’s sixth burned batch of LUNC tokens. This decreased LUNC supply by a further 6.39 billion.
Is the Burning Strategy Likely to Succeed?
In October, Binance burned 13.7 billion LUNC tokens, totaling 20 billion LUNC with the latest batch. This represents 0.33% of LUNC’s current circulating supply of 5,979 billion.
That’s orders of magnitude higher than LUNC’s original supply of 340 million, so the burning pace should drastically ramp up. However, as the trading volume for Binance to collect fees decreases, so does the burning volume.
For the foreseeable future, LUNC is bound to the 0.000X value range. Although this is light years away from Terra’s ATH in April, at $116, a rise is a rise no matter the decimals if the volume is there.
In the meantime, LUNC is much like a meme coin, a relic of history and a ghost of a bright potential that failed to materialize. This itself has value in the meme-prone social media spaces. Interestingly, LUNC is up by 202% over the last six months, while the new LUNA is down by 29%.