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The previously-implemented tax burn proposal on Terra Classic has been revised and will entail a 0.2% tax rate on each transaction. This was after blockchain contributors agreed to lower the tax charged on transactions of Terra Classic's native token, LUNC. Binance and Kucoin announced support for the change to the token burn and services for UST, including loans, margin trading, deposits, withdrawals, and contract swaps.
Tweaking the burn tax proposal to improve on-chain stats
The decision to change the rate was based on the premise that the previous 1.2% provision implemented in September to improve tokenomics disincentivized usage and ultimately affected on-chain network activity. The original Terra network had 6 trillion tokens resulting from UST redemptions as investors rushed to salvage their allocated portfolio in LUNC. This prompted the initial decision to reduce the bloated LUNC circulating supply. Last month, the chain's key contributor suggested tweaking the tax burn rate part of the initial proposal while retaining the 10% tax revenue part.
On-chain volume might not bounce, even with a reduced tax
In a blog post, Edward Kim, a member of the Terra developer community, critically assessed the situation as it faced acceptance and rejection from different sects. On reducing the tax to attract liquidity (desert the inordinately high 1.2%), Kim suggested it could be a case of confirmation bias where ‘the high fee discouraging projects from relaunching on Terra Classic or even shutting down' issue has only affected a small number of projects. He tied his explanation to the fact that several other projects migrated successfully.
Tax burn structure endears to reward developers, but there's friction
The machine learning expert played down the discussion that reducing the tax to 0.2% would create an uptick in the on-chain volume. He explained that even though it's a logical argument, there wouldn't be much of a change. He opines that the expected addition of new validators (later this month) would naturally attract new delegations to grow the on-chain volume. He added that new utility on the network would likely influence volume growth.
Those against vacating the 1.2% rate argued that, at present, there is limited data inadequate to dictate a decision. Kim rejected the suggestion that it is too early to change course but said it's not too late either. The Terra Rebels co-founder wasn't too skeptical about the adjusted 0.9 parameter change to reserve 10% seigniorage from the burn to send to the community pool. He supported the measure by arguing the need to raise money for use in case of emergencies, remunerating the developers, and attracting projects and decentralized applications.
An authoritarian move from the developer community
Self-proclaimed Terra whistleblower FatManTerra was one of the more outspoken voices against reserving a portion of the tax, saying that paying contributors is authoritarian and incorrect. He instead recommended adopting formal allocations from the community pool, donations, or profitable ventures to pay developers. Kim, however, saw nothing wrong with the new approach, as funds would be distributed contingent on governance approval.
Earlier this week, Kim put forward another proposal to establish a $68,000 grant program drawn from the community pool. The intention is to use the equivalent of 1.45 million USTC and 50 million LUNC to fund the proposed Terra Classic Grants Program for six months, led by the associate Computer Science professor as director. Specifically, the funds would go into creating a website for the program, hiring a project manager, determining the criteria for issuing grants, enabling recipients to bring in proposals, providing transparency/oversight, and other activities around the program. His proposal would establish an open system to attract new talent and has, so far, seen widespread support.
On expanding the availability of LUNC to those in the traditional financial system, the crypto payments platform OKSe recently made the token available on Samsung Pay, Apple Pay, and Google Pay. Proposal 5234 was recently approved to introduce a 10% collection on the revenue accrued from the tax burn at the end of every epoch. This proportion of the seigniorage would be redirected to the community pool.
Terra Classic (LUNC) action
In the last three weeks, the Terra Classic coin has shed most of the gains it made at the end of September. Market data shows that the token has charted a slight dip from $0.00036 to $0.00024, where it was observed at writing.
LUNA, the coin associated with Terra 2.0, has also seen little volatility in the last 24 hours. The token's price has remained in a descending course for five successive days, giving away roughly 16% during this period.
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Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.