Summary
Burning Bitcoin with transaction fees that are generated by the luna ecosystem has the potential to unite the whole crypto market towards one goal. Such a mechanism could solve many terra problems and give the token back a unique narrative.
Luna can have true chances to become the industry’s third biggest force, behind Ethereum and Bitcoin.
Why should Terra Luna burn Bitcoin?
Currently, the Terra-Ecosystem and LFG do not have the best reputation. There is a lot of distrust from crypto investors towards Terra. A drastic change is needed to change this situation.
Burning Bitcoin with transaction fees is going to shift the public opinion about the Terra ecosystem
The coming Luna token does not have a unique selling point nor a strong narrative behind its name. The Phrase: “Just another Layer-1” even trended on Twitter.
People were asking the question of whether awesome UX, great developers, and a strong community would be enough for Terra’s comeback.
Burning Bitcoin will give the Luna token a unique selling point not yet seen at any other major layer-1
Since LFG first announced to purchase Bitcoin, the market cap of the terra ecosystem has seen an inflow of billions of dollars.
Suddenly the entire crypto community was talking about Luna. The biggest content creators covered the story and Do Kwon even did a Podcast on the best business show.
Burning Bitcoin with transaction fees could finally bridge the gap between those communities and truly unite the crypto markets towards the same goal
How much Bitcoin could be burned?
The question remains if the generated transaction fee’s will be enough to burn a significant amount of Bitcoin.
Additionally, two important factors need to be accounted for:
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- Purchasing and burning of Bitcoin could create selling pressure on the Luna token
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- The planned inflation through staking rewards could increase the total supply of luna
Bitcoin can only be minted when 1) more luna is burned through transaction fees than minted through staking rewards at any given timestamp and 2) the selling pressure on the luna token is less than the burning pressure through transaction rewards.
Transaction fees on Terra:
How much transaction fees can be generated on terra and will it be enough to account for the requirements?
The first indication of profitability is that LFG was able to purchase Bitcoin in the first place. It can be assumed that the transaction fees which are generated are enough to burn luna and bitcoin.
Assuming a similar mechanism to the Spread Fee on the luna classic chain (minimum of 0.5% between UST-Luna swaps) the following numbers have been calculated:
- In April we have seen an average daily volume of more than 4 million luna tokens.
- The median price at that time period was roughly $90.
Considering these numbers [daily transaction volume * average price * 30 * 0.5% trading fee ] the transaction fees were equivalent to more than $500 million in April.
Data source: Terra Historical Data - Investing.com
Community governance over the burning parameters:
The Terra community is currently divided on the question of how much influence the Do Kown and LFG should have over the new Terra chain. Giving the community control to this crucial part of the ecosystem could be the first step to achieving a compromise within the community.