Should the 1.2% Tax Burn Rate on Terra Classic (LUNC) be Decreased, Here’s What the Community Thinks

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Last Updated on October 15, 2022 by Bitfinsider

Proposal 5234 Tax Burn Underway

The Proposal 5234 has been in discussion these days in the Terra Classic community after Binance CEO “CZ” recommends lesser fees to increase Terra Classic (LUNC) burn rate. A member of the community named Akujiro has proposed cutting the burn tax down to 0.2 percent and allocating the remaining 10 percent to finance the infrastructure of the Terra Classic ecosystem and the people who contribute to it. The group behind the 1.2% tax burn and Terra Classic revival roadmap supports Proposal 5234.

The Terra Rebel Alliance backs Proposal 5234, which seeks to lower the 1.2% tax burn.
The volunteer developer group known as Terra Rebels, which is responsible for the 1.2% tax burn, is currently polling members of the Terra Classic community to get their feedback on the proposal. Meanwhile, Terra Rebels lead developers Edward Kim and Alex Foreshaw have expressed support for the Proposal 5234.

Edward Kim, co-author of the 1.2% tax burn proposal, in a tweet on October 15 revealed that after a detailed analysis he voted “yes” to the proposal. In an article published on Medium, he discussed the implications of lowering the tax rate to 0.2 percent and devoting 10 percent of the collected revenue to the community pool for new Terra Classic chain developments.

He is of the opinion that the community pool can be utilized for the purpose of providing emergency funds, luring DApps and projects back to the Terra Classic chain, and compensating developers for their contributions to the enhancement of the chain.

At the moment, one hundred percent of the tax parameter is burned after every epoch, which for LUNC is every seven days. All LUNC that have been burned are reminted at the end of each epoch, and they are then immediately burned. It implies that if the new proposal is implemented, setting 0.9 and 90% burn will in fact function as a 100% burn during the week, and re-minting 10% of the burn will be performed.

In addition to this, he bases his decision to cut tax burn to 0.2% on the optimization achieved through machine learning. He thinks some projects or DApps have certainly moved away from LUNC due to the on-chain tax, but most have supported the on-chain tax. It is in everyone’s best interest to keep looking into the matter because there is not enough evidence to suggest that a tax of 0.2% will increase trading volume.

However, Alex Foreshaw voted “No” on the tax change proposal by accident, before it was revealed that a lower tax rate in conjunction with the CosmWasm upgrade will improve on-chain liquidity. Additionally, it will restore lost LUNC trading volumes and make it possible for DApps to be built on Terra Classic.

In the meantime, it appears that validators and other members are in favor of the proposal that is based on the recommendation made by Binance CEO “CZ” to lower fees.
After the 1.2% tax burn, staking, and various other governance activities, the price of Terra Classic primarily increased. Additionally, the decision that Binance made to burn a portion of the LUNC trading fee has been a significant contributor to the acceleration of the burn rate.

As of the time this article was written, the price of LUNC was trading at $0.00027, representing a decrease of over 3% over the course of the previous twenty-four hours. The negative sentiment felt by traders across the market has resulted in a 50% decrease in trading volume.

Until now, over 19 billion LUNC tokens are burned in total. In addition, the burn address is responsible for 13 billion LUNC tokens, while the tax burn is only responsible for 6 billion LUNC tokens.

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