LUNC is not from Amsterdam
Authored by Rex Harrison (@ Rexyellerbelly), aka — Rexyz
What’s it all about Alfie
Wikipedia: [i]
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
There is a variety crypto currency types. For the purpose herein I’ll split them into 4 main categories, with primary uses.
- Governance tokens — for establishing a transparent and fair voting system,
- Stable coins — a stable level of purchasing power, often following a FIAT currency,
- Utility coins — a currency used to form a platform for utility,
- Meme coins — a currency of no intrinsic value aiming to drive ownership through desire.
LUNA
On the 5th of April 2022 LUNA reached just shy of $120. Within a few days following a depeg on May 8th it had fallen to 0,0000000, losing virtually 100% value. After a rebrand and 6 months of recovery it is now up to 0.00025.
During the depeg event LUNA was ‘attached to another currency a stable coin, as one changed so did the other to keep the arithmetic stable coin balanced at a notional $1 value. A minting mechanism worked in the background so 1$UST was always worth 1$ of LUNA. Think of it as a bank vault and a cash register swapping money to maintain the cashiers float. It worked efficiently until the vault held less than the cash register.
As the currency crashed, LUNA officials turned off delegations to prevent a takeover, pumped investment into the currency to allow protective governance decisions to pass and essentially broke governance.
CPR
The Terra Classic block chain has undergone extensive development since its crash and relaunching from LUNA to LUNA Classic (LUNC). Developers led by Edward Kim and Tobias Anderson have contributed significantly to reintroduce governance through staking and delegation to allow those holding the currency to partake in the decision making of the currency. Simply put, if you hold the currency and you commit to tag it to a Validator (called delegating) then you can either vote directly on governance proposals or you can sit back and allow your validator to vote on your behalf. One coin, one vote. As a fundamental basis of a decentralised finance ecosystem, this is critical.
Does this voting mechanism make LUNC a governance token?
A once thriving ecosystem
LUNA before the crash had a myriad of applications built on it. It had grown fantastically in a matter of months and was the goddess of crypto with 100’s of builders wanted a bit of LUNA’s action. It was this ecosystem that drove growth.
The LUNA crash coinciding with other world wide events such as the invasion of Ukraine, and the aftermath of COVID19 led to a prolonged downturn, wiping an estimated $100bn dollars off the value of crypto. To use the word decimation, is a wild understatement, it created a crypto winter. Trust in crypto, that was already lacking pretty much evaporated overnight.
This event through necessity unexpectedly galvanized a community.
Following the crash, TFL decided to create a new coin in an effort to protect the businesses and validators that essentially lost everything, this new coin LUNAv2 was launched from genesis on May 28th, 2022. In a desperate attempt to rescue the community Do Kwon rallied the builders and Validators to embrace this new currency plan and ‘rebuild’. The plan had one flaw, and a very crucial flaw, to essentially pass the resolutions through governance the people were denied their part in the vote, the governance system for delegating had been turned off to delegators, and not reenabled, albeit with the best of intentions the voting system was in affect no longer decentralised.
New Friends
Thinking that the ecosystem was driven by the applications was the flaw. The voting public rose up, the investors, users and some steadfast validators in a momentous indicative vote on Twitter voted with over 95% to say no to a split in the chain and the genesis of LUNAv2. The lady was not for turning and the mob was not letting their moon goddess be taken from them.
LUNC Mania
An ecosystem needs customers and users, however equally these users need somewhere to use their funds. So, without an ecosystem can LUNC really be a utility and governance-based token.
In Amsterdam between 1634 and 1637 it became increasingly fashionable to own tulips. [ii] As their popularity grew, so did the demand for rarer examples, this drove massive rises in the ‘value’ of the tulips with single bulbs fetching vast prices, and futures trading in bulbs could lead to fortunes made overnight. The price skyrocketed.
However, in 1637 the inevitable happened common sense prevailed, the realisation of the intrinsic value of a ‘flower’ was recognised, and the price crashed, reportedly wiping away fortunes overnight. Often described as the first speculative bubble, bulbs had essentially become a crypto meme coin. Inflated desirability led to a price with no correlation to its intrinsic value.
Burning Desire
Since May 12th LUNC has in effect been a Tulip. Implementing the burn tax along with wild expectations of exponential growth through burning of coins led in effect to turning LUNC into a meme. By starting a burn tax at a level of 1.2% many remaining builders felt the economic environment was hostile to rebuilding on LUNC, with many builders arguing that any tax at all prevents their dApps from functioning.
Has implementing the 3568 burn tax proposal reduced LUNC to a meme token?
The ravaged ecosystem was pretty much sterilised and other than a few dApps no regrowth has occurred. Not only this, but exchanges have struggled with maintaining trading volume and essentially the tax has put out the fires it had hoped to create.
Developers and respected community ambassadors banded together and educated the community to pass a vote to reduce the tax to a more ‘sustainable level’ of 0.2%, with a hope that this could be a happy middle-ground and support trading volume, attract activity and thereby create a sound foundation for growth.
Everyone loves tax when everyone else is paying it.
With the leading exchange Binance having trading fees starting at 0.1% this is unlikely to have a remarkable effect, as Binance through billions of trades has probably found the sweet spot for trading fees, and therefore probably the ‘burn fee’. However other exchanges charge more, and it seems that even TerraCVita [iv] is considering that a 0.3% tax could be workable for their Dex.
Being positive the speculation of the burn tax fostered a community cohesion which brought many diverse elements of the community together into a pretty much unified voice, however as with many modern myths, this unity unfortunately failed to deliver anything of substance. Consequently, the rise in value to 0.0006 was short lived and many a moon boy was left in the dead of night. The burn tax essentially caused our tulips from Amsterdam moment and turned LUNC into a meme coin. Many are still convinced by the meme dream and essentially brainwashed into their LUNC tulip being worth more by having its petals removed though burn dreams.
Shop till you drop
So, what is the way forward, can LUNC be turned back into the powerhouse it once was and shed its brewer's droop. In the authors opinion definitely. What LUNC has is a massive customer base. With what is often considered the largest and most active community in crypto LUNC will soon be a vast marketable community ready to spend. With the upcoming change in the core code, to bring it to parity with LUNAv2 applications that rebuilt on the new chain will be able to port over and be able to be used on the mother chain of LUNC. This will bring many advantages for these dApps rather than waiting for the LUNAv2 community to grow large enough to sustain the community on their new commercial estate, the existing LUNC community will be ready and waiting to spend again at the commercial estate they left.
To achieve parity this may mean the burn tax will need to be completely removed to allow dApps to port over. Is this an issue?
Is the idea of a deflationary LUNC, a let down? I don’t think so.
The great selling point of a burn tax is it being a deflationary token, and thereby continuously increasing in value due to a reduced circulating currency. This however can be achieved by other means. The current situation is that 26Bn LUNC has been ‘burned’ however this is not primarily through the burn tax and alone the burn tax would take decades to burn the volume to pre-crash levels.
The vast quantity of burn has been philanthropic, Binance, Lunatics Token, MEXC, LUNCDAO and Allnodes amongst others essentially burning business profit and fees to attract marketing advantage, and doing the ‘right thing’.
An uplift and antidote to brewer's droop — market led burns.
My burns better than your burn!
While the burn tax exists what LUNC needs is a mechanism to allow those that can build with a tax to build, but those that cannot build be allowed to contribute in another way. In effect just as the burn tax governance proposal was a signal to off chain utility to philanthropically fit in and burn out of good faith, good faith and marketing advantage can be used on chain. Those that cannot build with the tax can be whitelisted to operate without the tax and league tables of those that burn in their own way can be established. What we need to attract are the core utilities, such as a DEX to enable cross chain liquidity, NFT Marketplaces, lending and investing platforms, community activities, places to spend LUNC and Analytics so that we can track and make informed choices, and the holy grail of real world adoption. Each of these has a capability to generate income and profit, from profit taxation and fees can be deducted to contribute to building funds, reinvestment and of course generate a deflationary token.
LUNC can then become a utility coin, LUNC can then be great again.
[i] https://en.wikipedia.org/wiki/Cryptocurrency
[ii] https://en.wikipedia.org/wiki/Tulip_mania
[iii] The%20Real%20Story%20Behind%20the%2017th-Century%20‘Tulip%20Mania’%20Financial%20Crash%20-%20HISTORY
[iv]https://twitter.com/RexYellerBelly/status/1587620119483654144?s=20&t=Zgzn7orAxWgVROHmQ0mFvw