Things are not so clear with the LUNC burning mechanism and the pump it causes
LUNC’s parabolic growth in early September was fueled by a proposal to include a 1.2% burning fee on every transaction made on the network. Billions of dollars poured into the project as investors looked for exposure to deflationary assetBut there is a catch.
According to the proposal, burning volumes will exceed $4 million a day if centralized exchanges accept burning fees, and this is where the potential problems for Luna appear.
/6 Even at face value, the daily burn is more likely to skew in a more conservative scenario, which models at $55k on the day. The excitement surrounding this offer led to a drop in the bucket for the $3b token which has just risen 500%.
— Light (@lightcrypto) 11 September 2022
Binance, one of the largest exchanges in the world, issued a statement in which it told its users that they would not impose fees, bringing the daily burn volume to just $55,000.
For a project with a market cap of $3 billion, less than $100,000 of daily burning volume is insignificant and will have no impact on the coin’s market cap.
For now, network access is close to being free, and an additional fee on transactions will reduce users’ activity even further. There are some signs of manipulation from validators in on-chain data that was intentionally inflated, as network activity at some point exceeded the total circulation of tokens.
All of these factors suggest that the rally we saw earlier was based on on-chain manipulation and a questionable proposition that would not have the desired effect on the token’s market cap, given the actions of centralized exchanges.
On September 15th, $34 million worth of LUNC tokens were issued, which raises an important question: who will buy all the volume put into the market? The main increase in trading volume that we saw earlier was generated from Binance, due to the lack of data and the lack of data that would reflect the previous catastrophic decline.