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Finding the most Luna burning on a single week, the reason and the burnings effect on Luna and UST.
What does burning Luna mean?
Before starting to analyze data, lets know what does burning mean in Terra ecosystem, so I had a look to Terra official website and found this description:
The price stability of Terra is achieved by the protocol’s algorithmic market module, which incentivizes the minting or burning of Terra through arbitrage opportunities. Arbitrage occurs when a user profits from price differences between markets.
The Terra protocol’s market module enables users to always trade 1 USD worth of Luna for 1 UST, and vice versa, incentivizing users to maintain the price of Terra. This same principle is true for all Terra stablecoin denominations.
Users can access the mint and burn function of the market module by performing market swaps in Terra Station. To learn how to use the market swap feature of Terra Station, visit the Terra Station market swap guide.
Example
If 1 UST is trading at 1.01 USD, users can use the market swap feature of Terra Station to trade 1 USD of Luna for 1 UST. The market burns 1 USD of Luna and mints 1 UST. Users can then sell their 1 UST for 1.01 USD, profiting .01 USD through arbitrage, adding to the UST pool. This arbitrage continues until UST price falls back to match the price of USD, maintaining Terra’s peg.
The same arbitrage mechanism works in reverse for contraction.
Example
If 1 UST is trading at .99 USD, users can buy 1 UST for .99 USD. Users then utilize Terra Station’s market swap function to trade 1 UST for 1 USD of Luna. The swap burns 1 UST and mints 1 USD of Luna. Users profit .01 UST from the swap. This arbitrage continues, and UST is burned to mint Luna until the price of UST rises back to 1 USD.
Now, we have a better Perception from the Burning, so lets a take a look at Luna burning history:
A chart can give a better look to this data:
So, I think we are finding something! Luna burning amount hugely Increased 2 times, one starting from 9th February 2021 until 14th , and the second and bigger one from from 10th November 2021 until 20th, Lets change the timeframe in order to answer the first question!
I think its clear now! The burning record In a single week is from 8th until 15th November 2021 and the amount is about (42.8+49.95) = 92.75M Luna, well I think that's a insane record!
Why This volume of Luna burned?
Personally, I searched Internet about this event, and found that this decision was made via the on-chain governance mechanism, and the LUNA will be burnt and swapped for the chain’s native stablecoin, UST, according to proposals 133 and 134, And here is the @terra_money's official tweet about it, on 10th November 2021:
1/ The on-chain votes for proposals 133 and 134 to burn the 88.675 million Pre-Col-5 $LUNA in the Community Pool (~$4.5 billion), swapping for $UST using the on-chain swap, and reducing the oracle_rewards_pool distribution window from 3 to 2 years have now passed!
2/ The first swap to burn 520K LUNA → ~16.5 million UST according to the details in the proposal has now been executed 👇
3/ Swaps will continue at the pre-defined schedule until the process is complete over roughly the next two weeks and all 88.675 million LUNA is burned.
Well, I think we found the correct answer to the reason of this valume of Luna butning on this time period, so we move on and see how UST supply and Luna Price changed after this burnings.
I add UST supply changes to the previous query, cause I want to take a look to this events effects on UST.
And if we look to the chart:
It's clear! UST supply had a big jump after burnings, the supply has increased from 2.9 to 7.2 millions from 8 until 22 November 2021 and also the the growth of UST supply continued with sharper rate after this burnings and the at the end of 2021 it hited the 10 millions!
Now I want to take a look to Luna price, and fount how it changed after this two proposals
As we can see, Luna average daily price hit the $50 for the first time in the 8th November 2021 and! The burnings increased the demand and helped Luna to create new ATHs on some continuous days. Now lets change the charts time frame to weekly and bring it to the burnings chart:
I think the charts show that this event maid Luna price so bullish and started a good rally to it, the average weekly price stared a good run after this burnings and hit the $91 ( average price on weekly timeframe) for the first time on 10th December 2021, although the price reached to the $97 in the same time period if you look back to the daily timeframe.
Alright! That was my thoughts about this question, The burnings had positive effects on both two factors that I studied and brought a bullish wave to both UST supply and Luna price.