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Terra Classic Isn’t Going To $1. Here’s Why

By Crypto BriefingCryptocurrencySep 02, 2022 02:09AM ET
www.investing.com/analysis/terra-classic-isnt-going-to-1-heres-why-200629312
Terra Classic Isn’t Going To $1. Here’s Why
By Crypto Briefing   |  Sep 02, 2022 02:09AM ET
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Talk of implementing a 1.2% burn tax on all transactions has caused LUNC to soar more than 171% over the past week. But the latest efforts to revive the failed project may be an elaborate pump and dump.

Key Takeaways

  • Luna Classic plans to implement a new 1.2% transaction tax burn mechanism.
  • The failed project's native coin, LUNC, has risen 171% in the week.
  • However, new investors should temper their expectations of the coin eventually hitting a dollar.

The Terra Classic community is planning to start burning more LUNC—but traders should be careful they don’t get burned themselves.

Terra Classic’s Revival

LUNC/USD is attempting to make another run at relevance, thanks to support from its community.

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

However, since Terra’s untimely collapse, efforts to revive the original blockchain have progressed slowly. In June, a proposal to start burning a portion of the Terra Classic transaction fees and increase validator rewards showed that there was still motivation to develop the chain despite being abandoned by Terraform Labs. Another proposal to start burning 1.2% of all tokens transacted also passed a community vote, though details on how such an idea could be implemented were absent.

All the while, LUNC, Terra Classic’s native coin, continued trading. Volatility was high but not wholly unexpected, given its low level of liquidity. The few active developers in the Terra Classic ecosystem were enough to fuel speculation. As is often the case with crypto tokens that trade at a fraction of a cent, hope kicked in for LUNC to one day trade at a single penny or, for the more ambitious (read: deluded), a dollar. Such a move would put LUNC market capitalization in the trillions, a fact that its biggest shills refused to acknowledge.

Fast forward to today, and a recent proposal from Terra community member Edward Kim has helped reignite enthusiasm for Terra Classic. Kim’s proposal puts forward an actionable path toward implementing the 1.2% burn tax on all on-chain transactions. In his post on the Terra Classic forums, he explains the possible pros and cons of such an update and invites discussion from other community members. In response, LUNC has hit a new local peak, trading at its highest since the May collapse.

But what exactly do burning and taxing Luna Classic transactions hope to achieve? How will the community be able to enforce the tax on centralized exchanges? These are just a few questions the Terra Classic community needs to address in the lead-up to an event that could spark significant volatility.

Burn Tokens, Get Money?

Burning tokens is a straightforward concept to understand. When the supply of something is reduced, but the demand stays the same, it follows that the price people are willing to pay will increase. It’s no coincidence that many of the most popular and widely adopted crypto projects incorporate a burn mechanic into their tokenomics. Shiba Inu’s developers routinely burn chunks of its supply, and Binance’s BNB also conducts quarterly token burns, much to the applause of holders.

However, burning tokens does little to impact actual supply and demand metrics in many cases. In the case of BNB, almost all of what’s burned comes from a reserve of tokens the exchange has held since launch. It makes for a good headline when Binance touts it has burned millions of dollars worth of BNB, but those tokens were never in circulation. It’s not surprising, then, that such events have historically failed to impact BNB’s price.

However, token burns create a strong narrative that even the most novice crypto investor can understand and get behind. It matters not whether a burn mechanism will significantly shrink a token’s supply and push prices up. By hyping up a token burn enough, the price will often rise anyway because people buy in anticipation of a perceived reduction in supply.

For Luna Classic, its planned token burn tax will likely do nothing more than creating an excellent narrative to draw in naïve investors. Most LUNC trading occurs off-chain on centralized exchanges such as Binance, Kucoin, and Gate.io. That means even if the Terra Classic community successfully implemented a 1.2% burn tax on transactions, only a tiny fraction of LUNC would end up burned. While many members of the LUNC community have petitioned exchanges like Binance to implement their burn tax, it looks unlikely that any will.

It’s also worth noting that since Terra Classic re-enabled staking earlier this year, large holders and validators have been taking advantage of its outsized staking rewards. Because few people have bothered delegating their LUNC to validators since the chain’s collapse, rewards are split between fewer people, resulting in an average annualized return of over 37%. These early stakers now have fully-loaded bags ready to dump on new investors who are convinced Luna Classic’s upcoming token burn will shrink the supply and send it to a dollar.

Ultimately, Luna Classic has little fundamental reason to be valued as highly as it is, even at fractions of a cent. There’s no reason for serious developers to start building on the chain, and those currently involved seem to view it more as a hobby than a serious investment. Of course, this doesn’t mean LUNC can’t go parabolic again, but it can just as easily plummet when those pumping up the price decide to jump ship. Be warned for the gamblers out there: don’t get caught holding the bag when the music stops. And it will stop.

Original Post

Terra Classic Isn’t Going To $1. Here’s Why
 

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Terra Classic Isn’t Going To $1. Here’s Why

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Comments (8)
PB Mc
PB Mc Sep 09, 2022 6:43AM ET
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The article is correct. A 1.2% burn tax is a going to have almost no effect on the supply. Even if every Luna Classic token went through a burnable transaction, it would only reduce the supply by around 83 billion coins. Trillions of coins would have to be burned and the token would have to actually be used for something to cause it to have any significant value. If Luna Classic were able to attain a value of a penny, that would be amazing, but possible. If it reached a dime, that would be a miracle of near biblical proportion. The dollar value is just a number pulled out of thin air by people who own Luna Classic that think it would be great if each were worth a buck. Low supply isn't a reason for it to be worth a dollar. It would have to have a reason to be worth a dollar. They estimate that there are 130 billion pennies in circulation, That's 53 times fewer pennies than Luna Classics in circulation, and yet they are only worth one cent because they do one cent's worth of work.
Tom Turbo
Tom Turbo Sep 09, 2022 4:03AM ET
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" However, burning tokens does little to impact actual supply......" :-))))))))))))) think no need to comment this article
PB Mc
PB Mc Sep 09, 2022 4:03AM ET
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It will have very little impact on the supply. Even if every existing Luna Classic coin were in a transaction subject to the burn tax it would reduce the number of coins in circulation from 6.9 trillion to 6.817 trillion. Only a fraction of the total number of coins in circulation will go through transactions subject to the burn tax. It will take years and years for the burn to have any significant't impact on the number of coins.
Ongart Predikanit
Ongart Predikanit Sep 07, 2022 1:06PM ET
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stupidity
Salvador Giron
Salvador Giron Sep 07, 2022 6:49AM ET
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I think lunc will get at least to 1 cent no matter what you write down you will see and you will remember this moment, this comment of July 7 2022 keep it on mind.
senna senna
senna senna Sep 06, 2022 9:44AM ET
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u know nothing dude
senna senna
senna senna Sep 06, 2022 9:44AM ET
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u know nothing dude
Hazman Yusof
Hazman Yusof Sep 05, 2022 10:50PM ET
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FUD. how on earth https://investing.com was writing this kind of article...please look in other perspective mannn...see ya on earth!
Hazman Yusof
Hazman Yusof Sep 05, 2022 10:49PM ET
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a total FUD, why on earth https://investing.com was writing this sort of article...
 
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