In May 2022, we all remember the implosion of the Terra-Luna ecosystem with Ust losing its peg to $0.
The news on implementing a 1.2% burn on all on-chain transactions performed on the Terra blockchain has caused Lunc's trading price to rise by more than 200% in the last week (and overall 600% from the bottom). But the latest efforts to revive this now failed project may just be an elaborate "pump and dump" scheme. Can Lunc (Luna Classic) reach $ 1? The quick answer is no. When the Ust stablecoin collapsed in May, Luna's supply increased enormously. The seigniorage mechanism provided that when $1 of the Ust stable was created, $1 of Luna was burned. Instead, when 1 Ust was burned, 1 $ of Luna was created. During the attack, the large emission of Luna would have served to contain the collapse of Ust. You will remember that it was all in vain. Do Kwon, the infamous CEO of Terraform Labs, tried to create a new blockchain (Terra 2.0), however relegating his name to the failure of "Luna Classic" and renaming the new native coin simply as Luna. However, since Terra's premature collapse, efforts to revive the original blockchain have progressed slowly. In June, a proposal to start burning supply (burn) and increase staking rewards showed that there was still interest in continuing to develop on the chain despite being abandoned by Terraform Labs. The few developers active in the Terra Classic ecosystem were enough to fuel the speculation. As often happens with cryptographic tokens that are traded at a fraction of a cent, for Lunc the hope has arisen in the various communities to reach a value of 0.01 $, 0.10 $ or even 1 $ a day. A similar situation would bring the market capitalization of Lunc in the order of trillions, significantly more than Bitcoin (if it reached $ 0.10).
If Lunc reaches $ 0.054 it would jump to the top of the market cap ranking, along with Bitcoin ($ 379 billion at the time of writing). It should be borne in mind that no coin has ever endangered Btc's leadership. In second place we find Ethereum with 191 billion dollars. Excluding Usdt and Usdc, in fifth place we find Bnb with 44 billion dollars of market cap. Lunc has a market cap of 1.7 billion (a lot for a memecoin). Its references could be Dogecoin and Shiba Inu which have market caps of around 8 and 6 billion dollars but it should also be considered that these two coins were pushed by the wild marketing of Elon Musk on Twitter. Reaching $ 1 assumes a 3450x rise.
HOW EFFECTIVE WILL THE BURN BE?
However, with the implementation of the transaction burn, Lunc would lower its supply so a long-term price increase would be more viable. We must consider that almost half of Lunc's supply is on Binance and if the burn is implemented only on chain it will be completely inefficient (the volumes that move on chain are practically absent because the Earth DeFi is now dead). Clearly the key to everything would be the burn of transactions also on Binance and on some large exchanges but it seems that it will only take place on chain and on some small exchange like Mexc. After all, which trader would agree to trade a token, on whose transaction he loses 1.2% in purchase and then on sale? Supply burn is a simple concept to understand. When the supply of something is reduced, but the demand remains the same (or if it increases), it follows that the price that people are willing to pay will increase (because I am buying a token with less supply and therefore more "rare"). To maintain good value, the Shiba Inu team regularly burns a portion of its offering and Binance also performs quarterly burns for Bnb. Likewise, Ethereum burns a portion of the gas fees. In the case of Bnb, almost everything that is burned comes from a reserve of tokens that the exchange has held since launch and which are not part of the circulation. However on a psychological level it is a great marketing choice because it transmits confidence to the investor.
From the table below you can see how effective the burn could be based on the daily volumes. What volumes are we going to consider? During the mega pump of these days, the volumes reached over 1 billion dollars, a huge figure given the uselessness of the token and the market downturn. This leads me to believe that there is enormous speculation destined to die out. With volumes of $ 1 billion, the table shows that half of the supply would be burned in 1 month.
However, this table is not reliable because it assumes the constancy of volumes and above all the stability of the price: as the price increases, the burns become more effective. For simplicity, you assume this hypothetical initial situation (time I):
1 Luna= $100
Volumes= $100/day
Burn= 1%
If the volumes are $100 a day, I would burn 1 $ of Luna. If 1 Luna is worth $100, I would burn 0.01 Luna (1% of 1 Luna)
Ok, this lowers the supply and theoretically raises the price. Now let's assume (again for simplicity) this situation in time II:
1 Luna= $1000
Volumes= $100/day
Burn= 1%
We are therefore assuming constant daily volumes ($ 100) that would always burn $ 1 of the Luna (1% of $ 100). However 1 Luna is now worth $ 1000! I would no longer burn 0.01 Luna but I would burn $ 1 in $ 1000 then 0.001 Luna. It is evident that table was created for FOMO and it assumes constant volumes and stable price. However, the price cannot be stable: as the price increases, the burns become less and less effective. If you assume a constant price it is an obvious paradox. The projections on the amount of tokens burned are enormously overestimated.
Another problem is that many of these staking tokens will not be burned and as a result the supply of tradable Luncs decreases. For Luna Classic, its planned transaction tax will likely only create an excellent narrative to attract naive investors who are continuing to buy despite monstrous rises. Some validators and users have started burning their staking rewards and tokens of their own accord. It is easy to burn tokens. You just have to send them to "dead" addresses (without seeds). Why is someone burning their tokens? What does it gain? Are they doing charity towards the community?
As mentioned, regarding the burn of transactions, the vast majority of Lunc's trading takes place off-chain on centralized exchanges such as Binance, Kucoin, Kraken and FTX. This means that even if the Terra Classic community successfully implemented a 1.2% transaction tax, only a small fraction of Lunc would end up being burned. While many members of the Lunc community have petitioned exchanges like Binance to implement their trade tax, it seems extremely unlikely that any major exchange will introduce it. For other stats: LuncPenguins
It's also worth noting that since Terra Classic reactivated staking on August 26th, big holders and validators have taken advantage of its huge staking rewards. As few people delegated their Luncs to validators after the chain collapsed, the rewards were split among fewer people, with an average annual return of over 37%. These first stakers now have large quantities of tokens ready to be dumped on new investors convinced that the upcoming Luna Classic burn will reduce the offer and bring it to $ 1. Ultimately, Luna Classic has little reason to be appreciated, even at fractions of a cent. There is no reason for serious developers to start building on the chain and the people currently involved seem to see it as a game and not an investment.
Some have reiterated that Ustc will also return to the peg in the long term. Today Ustc is trading at around $ 0.03 and it is highly unlikely that it will return to the peg, as it will always have enormous selling pressure on its head: people who are at a loss because they didn't sell them, others who bought them below $ 0.01 and they can't wait to sell, to make a profit (or recover some of the losses following the May crash). As you all know, in the past I have written a lot of articles on Luna and Ust because I have always considered this blockchain to be truly revolutionary. Why? The crypto ecosystem needed a stablecoin like Ust without censorship (no blacklist and in the future completely decentralized, unlike Usdc, Usdt and Busd). However, the blockchain is now dead. Real Lunatics (old Luna community) do not support either the fork (Terra 2.0) or this revival (Luna Classic). Luna Classic today is just a speculative memecoin, with no use.
Of course, this doesn't mean Lunc can't continue his graphical hyperextension, but he could just as easily plummet when those who raised the price initially decide to abandon ship. After the big crash in May 2022, is Luna ready to write another black page in crypto history with a huge "Pump & Dump" scheme?
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