Thread by @milesdeutscher

$LUNC is gaining momentum in anticipation of its next major upgrade, which introduces a 1.2% burn tax to all swaps. 🔥

🧵: Could this mark the beginning of a sensational revival for Terra Classic? 👇

1/ $LUNC is the original token of the Terra Ecosystem. It originally had the ticker "LUNA", but was changed to LUNC (Luna Classic) upon the launch of the new Terra chain.

2/ Luna Classic uses the original code of the Terra ecosystem.

Its development and governance is community run, with Do Kwon now focusing on the new, rebranded Terra 2.0 chain, $LUNA.

3/ Over the past few days the $LUNC token has been skyrocketing in price, and is currently up 6x from its lows in anticipation of the new token burn mechanism.

To understand why this burn is needed, and its potential impact on the $LUNC price, let's briefly rewind to May 2022.

4/ When $LUNC was initially created, its purpose was to absorb price deviations of the $UST stablecoin.

• Tokens were burnt when UST was minted.
• Tokens were minted when UST was burnt.

5/ But, when $UST collapsed, this sent LUNC into a "death spiral", as more and more tokens were minted to defend the peg.

Ultimately, this defence was unsuccessful, with the token plummeting from $120 to $0.00004.

6/ The vast amount of tokens minted put a huge strain on the price, as the total supply quickly reached 7T tokens.

Token dilution rendered the chain effectively unusable.

But fix this problem, and maybe there's still hope for Terra Classic.

7/ Enter: The Burn.

This is new mechanism which burns $LUNC tokens via additional swap fees.

1.2% of transaction volume from token swaps is set to be burnt.

8/ This burning mechanism will be applied to on-chain swaps, but also on major exchanges.

Binance, Kucoin and other major exchanges are rumoured to be supporting the burn.

https://twitter.com/kucoincom/status/1563171913022578688?s=20&t=Dspb-irZpZZ-lD3G0I5aHg

9/ This feature will kick in following the Terra 1.2 ecosystem update, expected to go live around the 12th of September.

But, how will this affect $LUNC's supply?

10/ This chart outlines the equivalent amount of $LUNC burnt based on daily transaction volume.

11/ For reference, today the trading volume of $LUNC was $1b. If the ecosystem upgrade was already live, this would've resulted in a 120B token burn (1.7% of the total supply).

If the same pace maintained for 30 days, 3.6T tokens (~half the total supply) would be burnt.

12/ But, there are some major caveats:

1. This chart assumes that the $LUNC price is constant, but as price increases the law of diminishing returns kicks in.

13/ 2. It's unlikely that trading volume sustains this pace when hype dies down. Building hype is easy, sustaining it is difficult.

14/ 3. It assumes that 100% of the trading volume is eligible to be burnt.

Some exchanges may not support the network upgrade, and as more tokens are burnt, stored and staked, the tradable supply of $LUNC also decreases.

15/ So in practice, these projections tend to overestimate the amount of tokens burnt.

It's extremely unlikely $LUNC hits the famed $1 price target, as that assumes a whopping 3436x from current prices.

16/ However, the fact the original LUNA token previously traded at astronomical prices ($1-$120) does give it some scope for growth in the eyes of retail.

I view $LUNC as possessing the meme-coin like qualities needed to generate outsized returns.

17/ It has a cult-like following, and a community dedicated to reviving the ecosystem (#2 and #1 on LunarCrush's Alt Rank over the last couple days).

You can hate the tech, team or token. But, you can't fade the power of community and meme culture in crypto.

18/ I view the new burn mechanism as the first step in pursuing a revival.

The inflated token supply remains the biggest fundamental issue plaguing the network, alongside community trust.

Fix this issue and maybe, just maybe, it has a chance.

19/ The other major upgrade, which is already live, is staking.

According to Staking Rewards, you can earn 37.8% APR by delegating your $LUNC to a validator.

6.8% of the $LUNC token supply is currently staked.

20/ But, the question still remains: Why would any developer build on Luna Classic?

The most obvious assumption is that there is an opportunity for projects to harness the hype.

Similar to what we've seen on #DogeChain, projects may crop up to capitalise on the influx of users.

21/ Ultimately, developers are incentivised go where there's user demand. If there's an opportunity to accrue "easy" users, it makes sense to deploy a protocol.

But this logic only applies to opportunistic development, as opposed to projects with a multi-year time horizon.

22/ However, I still don't see any major reason why a serious developer would choose to build on Luna Classic over the plethora of (better) alternatives.

Cosmos, Polygon, Solana or any other EVM compatible chain would make more sense.

23/ Irrespective of its long term prospects, the upcoming network upgrade certainly marks the beginning of an interesting shift for $LUNC.

Maybe I'll even chuck in some gambling money in case it pays off.

But, it's highly risky stuff and there are no guarantees.

24/ I hope you've found this thread helpful.

Follow me @milesdeutscher for more.

Like/Retweet the first tweet below if you can. 💙

https://twitter.com/milesdeutscher/status/1565341393928667138