LUNC had skyrocketed until a failed chain imposed a transaction tax
On-chain activity appears to have dried up on Luna Classic, the network token of the failed and abandoned Terra chain, after it imposed a 1.2% tax on transactions burned from the supply.
LUNC’s price soared after a governance proposal advocating the burn mechanism went live on September 1, with LUNC surging 250% in eight days. Some investors speculated that the move could make LUNC deflationary, meaning more tokens will be destroyed than given out as rewards to validators.
Staking Rewards
However, critics questioned whether on-chain activity would continue if users were taxed at 1.2% on their transactions. With $162,000 worth of LUNC being offered as inflation each day, the network had to sustain $13.5M worth of daily activity to balance LUNC’s stake rewards.
On September 22nd, Lightcrypto, a popular crypto influencer, published that only $2,503 LUNC was burned in the seven hours after the control and combustion mechanism was launched.
catch 22
“The LUNC burn is a catch 22 – the token must be used to support the narrative but nobody wants to pay 1.2%,” they tweeted. “There is a dead chain at the end… Economic activity on the network has come to a standstill.”
However, other factors also seem to play a role.
FatManTerra, a prominent Terra whistleblower, responded that the upgrade that introduced the burn mechanism caused widespread bugs for dApps, wallets, and exchanges, further slowing down on-chain activity.
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They shared a screenshot of Discord chat logs with Terra Classic developers, who confirmed that many dApps were not updated to support the tax and that some centralized exchanges have not resumed deposits and withdrawals.
Binance has since restored Terra Classic withdrawals and deposits.
While trading in a sideways range for the past week, LUNC is down 52% from its Sept. 8 high. Ethereum, which introduced a burning mechanism when The Merge went live last week, has been destroying an average of 979 ETH daily for the past seven days, which equates to $1.2 million worth of ETH being burned each day at current prices.
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