Key takeaways

• Terra Classic’s v.2.2.0 Core Update has been completed, with lead developers sharing the latest network upgrades
• A major consideration during v.2.2.0 was whether to cap the Terra Luna Classic (LUNC) supply; however, developers have decided against the measure at this moment in time
• It is thought that a LUNC supply cap could fix ongoing tokenomics issues but would also represent a threat to the network’s infrastructure

The Terra Luna Classic development team continues to make protocol adjustments as it aims to recover value that was lost during the Terra Crisis of 2022. A recent update to the blockchain, known as v2.2.0 Core Update, has improved Terra Classic’s interoperability with the Cosmos ecosystem among other notable changes.

A full breakdown of the recent changes to the Terra Classic ecosystem can be found on the community forum.

LUNC token holders continue to hold out hope for a future price revival as the Terra Classic development team makes key alterations. A major point of discussion among the Terra Classic community has been whether or not to cap the LUNC supply within the protocol itself. As shared by a leading Terra developer on Twitter, this has been discussed in length.

L1 report for sprint #2

We have released core v2.2.0 first version (rc1) and will work with front - end, contract teams on testnet rebels - 2 to ensure backward - compatibility

We have investigated #LUNC cap and included report on the situation so farhttps://t.co/z0DVMT2lTL

— ??⚛️The Vinh Nguyen⚛️?? (@TheVinhNguyen4) August 21, 2023

How could capping LUNC supply drive a price recovery?

To understand how a possible LUNC supply cap could revive the token’s price action, it’s important to cover what led to the loss of value in the first place. Terra Classic is, at its core, an algorithmic stablecoin protocol that has two native tokens, LUNC and USTC. After becoming mainstays in the crypto top 20, a fundamental flaw in the protocol wiped $40 billion worth of value off the blockchain in just 3 days.

What happened to LUNC?

LUNC suffered hyperinflation during a devastating 72-hour period in May 2022. At this time, a bank run on UST (now USTC) meant that Terra Classic’s algorithmic stablecoin protocol attempted to mint enough LUNA (now LUNC) to offset the sudden supply shock. However, this led to LUNA losing 99.99% of its value and its total circulating supply increasing from 380 million to 6.5 trillion tokens.

You can find a detailed breakdown of what happened to LUNA here.

What effect would capping LUNC supply have on the token’s price?

Since the Terra Crisis in May 2022, the Terra Classic community has been attempting to recoup the value that was lost. Most recently, developers announced that a LUNC supply cap, coupled with the Luna Classic burn initiative, could fix the tokenomics problems by reducing the number of LUNC tokens in circulation.

The total daily trading volume for LUNC is typically over $20 million, which shows that the project is still in demand among crypto investors. On top of this, LUNC remains a top 100 cryptocurrency by market capitalization, with a current total value of $17 million.

If the Terra Classic community can sufficiently reduce the total LUNC supply, the existing demand for the project could lead to positive price action. It is thought that a LUNC supply cap could speed up the process of a full recovery; however, the ecosystem’s developers have shared their concerns about this prospect.

Why is it unlikely that LUNC supply will be capped?

While capping LUNC supply would help to fix the ongoing tokenomics crisis by reducing the total circulating supply, it would eradicate incentives for delegator and validator nodes at the same time. This is because the protocol would no longer be able to mint new LUNC tokens, representing a possibly-fatal security risk.

If no new LUNC tokens are minted during the consensus process, then node providers receive no rewards. This would make running a node unprofitable, leading to the possibility that certain operations are ceased. Not only would this decrease the level of decentralization, but it also would increase the possibility of malicious behaviour by proxy.

As well as this, the Terra Classic ecosystem uses two conjoined variable supply mechanisms to control the price of USTC. The algorithm works by minting and burning LUNC tokens according to the demand for USTC. In the event that LUNC supply is capped, no new USTC tokens can be minted — causing, in effect, a complete failure of the Terra Classic ecosystem.

What is the best next step for Terra Luna Classic?

The Terra Classic community continues to drive down the total circulating supply using the burn initiative. As well as this, the community recently voted in favor of burning 800 million USTC tokens. Both initiatives can help to bring fresh deflationary pressure into the ecosystem and help drive the value of the tokens upwards.

Nguyen The Vinh, a leading Terra developer, stated that no LUNC supply cap can be brought in until “USTC supply has shrunk drastically.”

At this moment in time, it seems as though the best next step for Terra Classic is to fix USTC’s tokenomics problems, introduce more utility into the ecosystem, and continue putting deflationary pressure on LUNC via the burn initiative.

Depending on the results, this could reduce hyperinflation for both LUNC and USTC without upending the protocol itself.

LUNC price prediction

The current price of LUNC is $0.00006337, down 2.17% in the past 24 hours. The CoinCodex price prediction algorithm expects LUNC to recover over the coming month. The price prediction for 22nd September 2023 is $0.00006487 — a 2.09% price rise in total.