Overview on Burn Tax

The purpose is to understand the effectiveness on burn tax.

Educating community who merely thinks that Burn tax is the only way out to revive LUNA Classic Chain

Overview on Burn Tax

Before I begin this topic, I would like to make myself CRYSTAL CLEAR that I was one among most of you guys who sternly supported the 1.2% burn tax. After implementation of the burn tax, I had also changed my mind to lower the burn tax to support more utilities. Today I am in this situation where I wanted to understand how effective is the burn tax in reducing the total / circulating supply. I am not creating any FUDs here, but trying to be realistic in achieving the long-term goal. I would like to stand corrected, if any of the below data is incorrect. At the end, I would relate this to my proposal (CUST). So do not be surprised after reading all till the end.

I am not an on-chain expert but arrived at the details based on available data. The below On-chain volume is taken from LUNC Penguins website. Though I am not going to do in-depth analysis, I am just using this data for a tentative projection.

Source:- luncpenguins.com (Data of last 60 days)

Lowest transaction volume / day – 11.27B; Highest transaction volume/ day – 204.91B

Avg. transaction volume / day – 34.15B

To keep it very simple, I have taken the avg. transaction volume / day. I have also included the highest transaction volume as there could be some unforeseen situation where such spikes will occur in transaction volume. Being optimistic, I am taking the higher volume per day into consideration than calculating the exact volume.

Avg. volume / day in billions Approx volume / month (B) Approx volume / year (B) Total Burn Volume @ 0.2% / year (B) Target Years to reach 10B Hard Cap
35 1,065 12,775 26 235
40 1,217 14,600 29 205
50 1,521 18,250 37 164
60 1,825 21,900 44 137
70 2,129 25,550 51 117
80 2,433 29,200 58 103
90 2,738 32,850 66 91
100 3,042 36,500 73 82
110 3,346 40,150 80 75
120 3,650 43,800 88 68
Avg. volume / day in billions Approx volume / month (B) Approx volume / year (B) Total Burn Volume @ 1.2% / year (B) Target Years to reach 10B Hard Cap
35 1,065 12,775 153 39
40 1,217 14,600 175 34
50 1,521 18,250 219 27
60 1,825 21,900 263 23
70 2,129 25,550 307 20
80 2,433 29,200 350 17
90 2,738 32,850 394 15
100 3,042 36,500 438 14
110 3,346 40,150 482 12
120 3,650 43,800 526 11

The above tables show that it is not enough if we depend solely on burn tax to reduce supply. Even if we are to reintroduce 1.2% tax, it will take ~11 years for us to reach a hard cap of 10B, provided, volume on all days should be 120B. We are now only in the 30B+ volume / day and it is not that easy to scale to 120B without utilities, and especially with 1.2% burn tax. The moment the current tax is raised, many projects that are currently working on LUNC will tend to move out of the project.

Lets’ see this scenario with an example. If there is a big project building on LUNC and wants to transfer 1M$ equivalent LUNC on chain. He should be mentally prepared to spend $12,000 for 1.2% burn tax / $2,000 for 0.2% burn tax. In this scenario, it is highly unlikely that anyone would want to spend $12,000 for a single transaction. Thou’ $2,000 is still a higher amount, they will be convinced to stay on chain as this is a small contribution that they are willing to pay to revive LUNC chain. So, raising tax rate is not going to help the chain survive. Rather, we may have to look at reducing the tax in few years’ time (not immediately) as more projects on board.

You may ask that burn tax is one of the ways for reducing supply. Yes, you are correct. Burn tax is one of the ways for reducing supply. That’s why we need to be open minded to see what other ways we can work at reducing supply. Enabling mint with (LUNC to USTC / new AFT) conversion is another way to reduce supply. Alex Foreshah is working on options to improve the ideas on his AFT USTN. As long as it has risk measures in place to avoid another death spiral, I will always support any project which can reduce LUNC supply and creating utilities.

If you ask me whether BURN tax is a failure, I would definitely say “NO”. BURN tax is what brought most of the LUNC community together of being decentralized. I salute Vegas for that and bringing the community together. It is not that easy to keep a group of members united. LUNC Burn has exactly done that and it is big victory. As burn tax had minimal implications on the total supply, I am proposing measures that we utilize these funds to create a decentralized AFT which by itself will benefit all thereby bringing more projects.

Reducing LUNC supply is a marathon, not a sprint. Lets’ all be prepared for it and act in the best interest for LUNC community. Hope to see this article create awareness who are merely thinking that LUNC burn is the only way out to revive the chain.

Stop tax experiments. Need work with real problems - ustc repeg/burns, main apps (updated Mir/Anchor). Need real utility and onchain volumes.

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I am not asking to change tax. All i am giving is a realistic view on the tax and also shared another article with the effective use of tax by creating a AFT “Community Terra”. Give a read on this article under governance and proposal. It explains how the AFT can be community owned, completely decentralised and pegged to 1$ without anyone’s interference

Link for the new AFT: Community terra (cust)