Learn why Terra Classic burns do not matter for token growth
Certainly, one of the downfalls that contributed to the crashing cryptocurrency market was the Terra ecosystem. The former LUNA and UST tokens – currently known as LUNC and USTC – experienced a sharp decline in May 2022 when Terraform Labs’ algorithmic stablecoin lost its peg with the US dollar.
Several investors at a loss was not Terra’s only legacy in the crypto ecosystem. As a result of the collapse, in addition to creating a new token and turning the old one into Terra Classic, the big crash brought trillions of altcoin units to the market.
To maintain the USTC peg, more and more LUNC tokens were created, causing the price of the altcoin to drop from $68 on May 7th to only $0.0001 on the 13th of the same month.
Additionally, on April 7, 2022, Terra Classic had 346 million tokens in circulation, hitting its all-time low supply. However, with the May crash, the altcoin’s total circulating tokens reached 6.9 trillion.
LUNC has joined the infamous coin family due to its falling price and extremely high supply. However, the desire for wealth and investors who bet on cheap coins in the hopes of getting rich keep people still believing in the recovery of altcoins.
In a market that highlights assets like Shiba Inu, is it possible that LUNC will skyrocket again and make investors rich? To offer a positive answer to this question, some people favor token burning.
But can the LUNC burn really send crypto skyrocketing?
Token burn involves definitively removing a digital asset from circulation and reducing its supply. The main purpose of token burning is scarcity, which can generate asset appreciation.
If the demand for an asset increases, the burn can be extra force for the growth of the token’s price. However, what the most demanding market shows is that this alone is not a differential for a larger capitalization.
For example, BNB, the token of Binance, in its early years, managed to increase the price of altcoins immediately after the exchange announced Binance. However, over time, as demand for altcoins increased, these burns began to exert downward pressure on the BNB price.
The popular altcoin meme, Shiba Inu, has the same trajectory. Burns happen, but the token price remains far from its all-time high.
In early October, $1.8 billion worth of LUNC tokens were burned by Binance, but that wasn’t reason enough for the crypto to soar. Other than being a cryptocurrency that destroyed market confidence by losing 99% of its capitalization, the token has no real use case.
For LUNC burns to influence the cryptocurrency’s price, at least 99% of its market capitalization should be burned.
In fact, this is something that could take years and still not happen, given that LUNC trades are few and that few transactions are done on-chain to burn tokens through altcoin transfers. .
Of course, the new wealth factor in a favorable market, which is always the case, should not be ignored. The arrival of a cheap new token could contribute to Terra Classic continuing its position away from the spotlight and the burns remaining unimportant for the altcoin’s price.
