The collapse of the Terra ecosystem was undoubtedly one of the factors that led to the collapse of the Bitcoin market. In May 2022, the algorithmic stablecoin created by Terraform Labs lost its peg to the U.S. dollar, causing the old LUNA and UST tokens — now known as LUNC and USTC — to experience steep declines.
Could Token Burn Make Terra Classic Soar?
Terra leaves more than a handful of losers in the cryptocurrency market. In addition to generating new tokens and turning old tokens into Terra Classic, the massive crash also delivered trillions of units of the cryptocurrency to the market.
More and more LUNC tokens were minted to maintain the USTC peg, which caused the price of the altcoin to drop from $68 on May 7th to just $0.0001 on May 13th. Additionally, Terra Classic’s supply is at an all-time low of 346 million tokens on April 7, 2022. After the disaster in May, the total number of circulating tokens of alternative currencies rose to 6.9 trillion.
LUNC joins the ranks of devaluing tokens due to falling prices and excess supply. Still, there is faith in the recovery of altcoins because of their money-seekers and investors who keep betting on cheap tokens to get rich. Is it possible for LUNC to soar again in an asset-heavy market like Shiba Inu, making investors millionaires? According to some, burning tokens is a positive response to this problem.
Burning a token involves permanently removing it from circulation and reducing its supply. The main purpose of burning tokens is to create scarcity, which leads to asset appreciation. If demand for the asset increases, the burn could put additional pressure on the price of the token.
However, the most competitive markets show that this is not a differentiating factor in raising capitalization itself. For example, Binance’s token, BNB, was able to rapidly increase the price of crypto in the early years after the exchange announced a burn. However, as time went on and the demand for altcoins increased, these burns started to have a lesser impact on the price of BNB.
The famous cryptocurrency meme Shiba Inu followed the same path. The burn happened, but the token price is still low compared to its all-time high. In early October, Binance burned $1.8 billion worth of LUNC tokens, but that wasn’t enough to boost the crypto’s price. The token has no meaningful use case other than being a cryptocurrency that undermines confidence in the market by losing 99% of its capitalization. At least 99% of the cryptocurrency market capitalization must be destroyed for LUNC burning to affect its price.
Shiba Inu, a popular cryptocurrency meme, followed a similar path. The burn happened, but the token price is still far from its peak. Binance burned $1.8 billion worth of LUNC tokens in early October, but that wasn’t enough to boost the crypto’s price. Apart from being a cryptocurrency that damages market confidence by losing 99% of capital, the token has no practical application. The burning of LUNC must consume at least 99% of the cryptocurrency market cap to affect its price.
Source of information: Compiled from AZCOINNEWS by 0x Information.Copyright belongs to the author Selena, without permission, may not be reproduced