Temporary 1.2% Burn & Development Tax During IBC Reopening.
PROPOSAL SUMMARY:
Both sides of the tax argument have made valid points as to why a higher/lower tax is more beneficial, the tax has served to bring the community together and slowly chip away at the supply, but at the same time too high a tax will drive away developers and many large volume
traders, this proposal seeks to use an increase in tax to capitalise on periods of increased activity, whilst in the long term ensuring developers are not put off from our chain.
This proposal aims to re-visit and analyze the effects of the previous and current tax-burns, and their efficacy (or lack thereof). With past data in mind we can reach certain self-evident conclusions and chart a more effective path forward. In retrospect, it is obvious that there were missed opportunities and missteps along the way - this proposal aims to rectify that by introducing an increaed tax period that would take advantage of the upcoming IBC reopening event to greatly increase the amount of LUNC being burned, while also building up funds for development in Community Pool and finally securring funds necesary to keep the chain running by topping up the Oracle Rewards Pool.
More detailed reasoning for such changes can be read in a supporting medium article by a co-author of this proposal:
https://medium.com/me/stats/post/82c57887824
PROPOSAL GOALS:
~ Short-Term ~
- To maximize the burn rate from volume returning from Osmosis by increasing the on-chain burn fee to 0.96%
- To replenish the Community Pool with an additional 0.24% taken from each transaction
*To replenish the Oracle Pool with 50% of funds collected by the Community Pool fee (at a later date)
~ Long-Term ~
- To keep the long-term tax rate lower as an incentive for builders (the final rate can be agreed at a later stage, based on how the eco system has changed.
- To have part of the tax directed to fund the Community Pool
- To have a part of the tax to fund the Oracle Rewards Pool
- To have a part of the tax set aside as a collateral for USTC (perhaps creating a new pool/wallet)
PROPOSAL DELIVERY:
- Agora discussion
- Parameter change proposal #1: to increase the tax rate from 0.2% to 1.2%
(with 0.24% sent to Community Pool)
Parameters changes required:
{
“subspace”: “treasury”,
“key”: “TaxPolicy”,
“value”: “{“rate_min”: “0.012”, “rate_max”: “0.012”, “cap”:{“denom”: “usdr”, “amount”: “60000000000000000” }, “change_rate_max”: “0.0”}”
}
{
“subspace”: “treasury”,
“key”: “RewardPolicy”,
“value”: “{“rate_min”: “0.8”, “rate_max”: “0.8”, “cap”:{“denom”: “unused”, “amount”: “0” }, “change_rate_max”: “0.0”}”
}
- Proposal to fund the Oracle Pool from the Community Pool (effectively 0.12% from each transaction collected during this taxation period).
- Discussion and Parameter proposal #2: to decrease the tax back to lower figures.
TIME FRAME:
#1 vote to be triggered approximately 9 days before IBC is reopened. If passed, the change would go into effect 2 days before IBC reopens - a safeguard not to miss the critical date.
#2 New tax rate discussion triggered after the date of IBC reopening.
#3 Vote on another tax change to be triggered at a reasonable date agreed during the second debate.
Specific dates to be discussed and coordinated with developers!
RATIONALE:
The proposal aims to synchronize short- and long-term goals, and calibrate the community on using the burn Tax rate effectively.
Historically, the burn tax has not been fine-tuned to major volume generating events, which resulted in a minimized burn rate. To illustrate that, let’s take a look at past governance proposals passed, the volume generated, and the tax rate that was in place. Let’s also try to rate these decisions in terms of effectiveness, and try to learn from those situations…
In this analysis we’ll be looking mainly at the on-chain volume, and total/circulating supply decrease. It is all about timing
-
Staking Re-Enabled
Background: This event had major effects on on-chain volume, with biggest volume seen since the crash. The change in volume was due to very high staking rewards APR (triple digit %s), which triggered a surge in demand for LUNC. In a few days’ time, about 7% of total LUNC supply had been moved from CEXs to Terra Station. This event was taxed at 0.00%.
Summary: This was a major, predictable volume-boosting event, and our biggest opportunity to apply a high burn-tax rate to maximize the
decrease in total circulating supply of LUNC. Instead, none of these transaction were taxed! It is safe to say that it was the biggest strategic mistake up to date. -
1.2% Tax Introduction
Background: This proposal was introduced at a time when staking APY has already decreased to a point where it was not a strong magnet for new investors anymore. There were no other major proposals or events at a time to reinforce the on-chain volume. The side effect of this proposal – since the momentum of LUNC social media influence was at its highest – is Binance joining the burn initiative by burning their fees collected
from LUNC buy/sell transactions.
Summary: This change was introduced too late to have major effect on the total supply. However, it spurred a major CEX to participate! -
0.2% Tax Change
Background: This change was done 3 weeks after the 1.2% tax was introduced. This change was promoted as a way to increase stalling onchain volume while increasing the burn rate due to higher chain activity.
Sadly, none of these have materialized. A few days after the change took place we saw one of the lowest daily burn rates recorded while volume has failed to increase since then.
Summary: This change had little effect on volume and burn rate. It has minimized the burn rate from another event - the introduction of new validators to Luna Classic Chain: a long-planned, known, and fully predictable volume-boosting event. -
Creating New Validators Function Restored
Background: As mentioned above, this event was subject to the 0.2% burn fee instead of 1.2% for no particular reason. The 0.2% rate was in place for too short a time to have any positive effects on volume, while it totally wasted the opportunity to reduce the total supply by taxing the new validators on-boarding event.
Summary: This bad decision was easily preventable if the introduction of 0.2% was delayed by just a few weeks. -
(Present Time) At this point we have another major volume-boosting event in our sight: around Christmas 2022 IBCs will reopen, and people who bought LUNC on Osmosis will be able to send those funds back to the Luna Classic chain. Many of them will also send those funds to centralized exchanges in order to sell to fiat and cash out. It is clear that there is a decision to be made in front of us. How do we interact with that opportunity based on the past decisions we made? Do we proceed passively and not take any action? Or do we start taking a proactive approach and try to gain as much of a benefit for the community as we possibly can?
RESOLUTION:
This proposal identifies 4 opportunities arising from the aforementioned situation…
(1) Possibility to fund the Community Pool: With the uncertainty around the 4 million USD in the multi-sig wallet (and the threat that we might
not be able to claim these funds due to legal issues), it is rational to seek other ways to fund the development and upgrades of our blockchain.
Thus, by temporarily increasing the community pool reserves, we could build up a budget for that purpose. This method is superior to claiming
funds associated with TFL due to lack of any legal risks.
(2) Possibility to decrease total supply at an increased pace: With disappointing short-term results of the 0.2% tax on the burn rate and total circulating supply, it is natural to seek a way to redeem the situation. Taking advantage of this volume peak is a way to do it. Taxing these transaction at a higher rate could more than make up for the turtle-paced burn rate we have seen for the last few weeks.
(3) Return to long-term approach: After the expected volume peak is over, we would return to the low tax approach and keep measuring its effects on our chain.
(4) Possibility to fund the oracle Pool which is very important as at this moment we are draining that pool of funds. If we do not find a way to replenish this wallet, we are putting the whole POS system at risk.
Oracle Rewards Pool address: (terra1jgp27m8fykex4e4jtt0l7ze8q528ux2lh4zh0f)
(5) Possibility to set aside funds for the USTC repeg (future change)
CLOSING REMARKS:
This proposal has the potential to unite our fragmented community back together via agreeing on a common way forward by having learned from past events (and mistakes). The approach presented in the proposal joins multiple different paths into one. Firstly it offers a win-win situation on both short- and long-term goals. Secondly it respects both the older vision which focuses on burning our supply to 10B, and the newer/leaner approach which focuses 100% on utility and higher total supply. Finally, it offers a switch from passive, reactionary decision-making (which has failed in the past!) to a proactive way of predicting future events and adjusting our methods to make the best out of them.
AGORA DISCUSSION:
This proposal is open for changes and input from the community. Anyone can participate and share ideas, which can be added to the proposal with
credit to its author(s) if found viable. Specialist advice on time-frame and dates to maximize the effects of this proposal would be particularly
welcome.
After implementation, we will reassess the on-chain tax depending how the ecosystem has changed
Proposed by
Powvski,LUNC_S6
LUNC Holders and Community Members
Contact:
@LUNC_S6(Twitter)
@Powski (TR Discord)
@Redne3ckFinance (Twitter)
¡Please hold primary discussion and feedback on Agora as it may be used to improve the proposal!
