I have thus far avoided opining on this, for the following reasons:
- Many of the people promoting this proposal are beleaguered underdogs in the fight against the rugfork. And I respect many of them. I donât want to demoralize them, or fracture opposition to the rugfork. Defeating the rugfork is the top priority here, and we must stand united on that.
(Rugfork. I coined the term a few days ago. It is the honest term. Feel free to use it.)
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You people are acting fast. Thus far, I have ideas and early prototypes. Unless or until I deliver something solid⊠Well, weâll see then.
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If implemented, this proposal doesnât directly affect me. I wonât be paying any transaction taxesânor will any users of anything that I build. And who knows? Iâm not entirely sure about the economic effects of this. You may succeed in boosting the value of my LUNA. I want to see that!
At this point, however, I think that I do need briefly to set on record why I am, at best, lukewarm about this proposal. I also must raise one strong objection to something that I just noticed in the fine print.
Understandably, everyone is just a little bit panicked about the LUNA supply. Trillions of LUNAs! Silvery moonlit oceans of LUNA! I myself made an early thread about LUNA burns. We all want to reduce the supply.
However, supply is only one side of supply-and-demand. My own thinking has consistently been both supply-side, and demand-side.
All other things being equal, I would prefer to have a tiny piece of a pie that grows, than to have a larger piece of a pie that shrinks. Actions can and should be done on both fronts, so that LUNA holders have bigger pieces of a pie that grows. However, this must be done with care: Supply reduction must not be done at the cost of undermining demand. That is economically shooting oneself in the foot.
Blockchain fees reduce demand. It is an unavoidable fact. Even the biggest, strongest coins cannot get away with imposing high fees on all transactions. That is why both Bitcoin and Ethereum have L2sâand why Ethereum is hemorrhaging market share to upstart smart-contract chains with lower fees. Bitcoin is still doing well, because on-chain fees are still reasonableâand the whole situation is anyway different, because the use case is different. Itâs not a smart-contract chain requiring a series of high-gas transactions to get anything done. Nonetheless, the mass-adoption push in the Bitcoin community is largely focused on Lightning, where fees are negligible. Itâs not reasonable to buy a cup of coffee with on-chain BTC, but you can make micropayments on Lightning without even noticing the fees.
Um, no, it doesnât work that way. All of your equations and number-crunching are predicated on current volume. They do not account for the predictable effect of raising transaction costs: Transaction volume will fall. Raise transaction costs more to compensate, and volume will nosedive.
But for my part, I havenât much cared about LUNA fees either way: I am effectually an L2 LUNA user.
Terra is bridged to numerous other ecosystems. I am a bridge user. In the past, I have held bridged UST (and no, I was not receiving the Anchor 20%!). Now, I hold bridged LUNA. I have never paid any LUNA in feesâzero. Now, I am currently working on some projects to boost LUNA demand, and/or to offer incentives for burning LUNA.
I donât want to talk prematurely about what is, thus far, only vaporwareâthe relevant point here is this: If I succeed, then I will generate a fantastically high volume of Terra-tax-free LUNA transactions, paying 0 LUNA in fees. Nobody should complain about that: I will be boosting demand for LUNA, and (with one active idea) giving people something valuable in exchange for them choosing to burn their LUNA.
I want to make LUNA awesome again. The amount of untaxed LUNA volume I generate will be roughly proportional to how much I succeed in making people fall in love with having wallets full of LUNA. If I fail to make LUNA awesome, then I wonât be generating any volume. Really, donât complain.
On my native chain, I have read the source code of the token implementation. All wrapper tokens are standardized (and, by the way, totally fungible!). The Wormhole people donât even have the the technical ability to impose arbitrary restrictions, fees, or taxes on transfers of wrapper tokens; please donât bother them about this, as they could destroy all trust in their bridge if they tried to do what they canât do by design.
(It is a significant issue. There are hundreds of billions of tiny little LUNAs sitting in Wormhole right now, wrapped on about a half-dozen chains.)
Thatâs why my private response to this was, âEh, maybe Iâm wrong. Maybe this will increase the value of my LUNA; Iâd like to be wrong about this! I wish these people well. Iâll just keep quiet about this, and focus on fighting the rugfork.â
However:
This is a hard ânoâ, absolute no, to the extent that it would get my âno with vetoâ if I could vote.
Trapping peopleâs money is wrong in principle. If people want to sell their own coins, they have an absolute right to do that without having an extra 20% loss artificially imposed on them. In the economics of this market, a 20% tax on sales is an almost confiscatory taxâalmost tantamount here to retroactively locking coins to stop people from selling.
And a tax on buys? Nothing could be better calculated to trash the price of the coin. At market, indeed, a 1% tax on buys can be expected to depress bids by at least 1.010101âŠ%. (Thatâs 1/0.99 - 1, which is slightly >1%.) In practice, it would probably reduce the price more: It adds friction to the market, a negative thatâs difficult to quantify but probably much more than 1%.
Similarly to a general tax on transactions, neither of these can be enforced outside the Terra chain. Iâm a DEX user. I bought all of my wrapped LUNA on DEXes. I have no intention of sellingâto the contrary, I recently held even when I could have taken as much as 50x profit! (My DCA from bottom-buys is extremely low. Iâm still much in profit right now, but itâs been sliding pretty badly.) I hold! Each and every little LUNA is dear to me. In principle, however, I reserve the right to do whatever I want with my own coins.
Some DEXes may or may not have the ability to impose special buy/sell taxes (though the responsible parties would probably say no). Some DEXes, the really decentralized ones, lack this ability altogetherâagain, I have read the source code.
