LUNC Up 18% After Binance Burn, Can the Rally Last?
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LUNC Up 18% After Binance Burn, Can the Rally Last?

Terra Classic (LUNC) spites new LUNA, but the interest is waning.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

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 November 11th. 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 10th, LUNA supply exploded to a ridiculous level of 6.5 trillion in just a couple of days, now holding at 5.9 trillion.

The inverse relationship between LUNC value and supply after UST depegging. Image credit: Mesarri.io

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 September 26th 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 then convert them into LUNC tokens, which are then sent to a burn address.

“Burning” itself is just sending tokens to an irretrievable wallet address, which means 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.

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Is the Burning Strategy Likely to Succeed?

In the month of October, Binance burned 13.7 billion LUNC tokens, totaling 20 billion LUNC with the latest batch. This represents 0.33% of LUNC’s present circulating supply of 5,979 billion.

That’s orders of magnitude higher than LUNC’s original supply of 340 million, which means that the burning pace should drastically ramp up. However, as the trading volume for Binance to collect fees decreases, so does the burning volume. 

Since Binance started implementing LUNC trading fee burns, trading volume spikes kept reaching lower highs. Image credit: Trading View. 

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, over the last 6 months, LUNC is up by 202% while the new LUNA is down by 29%.

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Do you think Terra 2.0 has too much taint, and too many competitors, to repeat the rapid growth of the original Terra? Let us know in the comments below.