Terra voted to burn a sizable percentage of tokens, price nearly reached a record high before dropping
The Terra Community has approved a proposal to burn 88.7 million Terra (LUNA) tokens, worth roughly $4.5 billion, and mint about 4 million to 5 million terraUSD (UST) stablecoins.
LUNA hits ATH as Terra Community passes burn proposal
Terra, in late October, announced Proposition 44 to burn 88.7 million LUNAs, worth over $4.5 billion, representing more than 18% of the current circulating supply of LUNA. After two weeks of discussion, the Terra community voted yesterday to approve this proposal, realizing the largest token burn event in crypto history (in USD value).
According to the plan, the burning of LUNA will be carried out in the next two weeks, but 520,000 LUNA was burned on November 10. Thanks to this positive news, LUNA price made a new all-time high at $54.95 before being corrected to $44.19 in the market’s bearish direction and then recovered to $48.88 at the time of writing.
LUNA/USD 4-hour chart | Source: TradingView
In return for the LUNA burned, Terra will issue an additional $4-5 billion stablecoin UST to provide more liquidity to the world’s 4th largest cryptocurrency ecosystem, with TVL over $10.8 billion. Specifically, Proposition 44 would provide funding for Ozone, an insurance protocol for Terra to prevent technical risks for DeFi projects built on the platform. The risk of being attacked in the DeFi sector has been increasing in recent times, when by the end of October 2021, DeFi hacks this year have caused $1.4 billion in damage.
2/ The first swap to burn 520K LUNA → ~16.5 million UST according to the details in the proposal has now been executed ? https://t.co/5FSrVaYGaN
— Terra (UST) ? Powered by LUNA ? (@terra_money) November 10, 2021
Even so, there is some skepticism about Proposition 44, arguing that the burning of 88.7 million LUNA is too much. However, the founder of Terra Do Kwon explained that the proposal to burn is also aimed at reducing the number of assets in the project’s fund.
In the interview with CoinDesk, Kwon stated that the burning proposal was also intended to reduce the wealth in Terra’s community pool.
“At the fully diluted market value of the network at almost $40 billion, I think having a community pool that is too large is a systemic risk”, Kwon said. “I believe community funds should be just large enough to pay for public services. … But a DAO (decentralized autonomous organization) doesn’t need billions of dollars to operate.”
Token burning is the latest trend of the crypto ecosystem in the second half of 2021. Since Ethereum implemented the EIP-1559 mechanism to burn part of ETH transaction fees, other projects such as Binance Smart Chain, Cardano, and Terra have announced proposals to reduce the total token supply.
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