Try Quests to earn crypto[Terra Luna] Let It Burn!
This dashboard shows Terra LUNA token's weekly burn in 2022. It highlights the week that the most volume of LUNA burning happened, reveals what event caused this high burn, and elaborates on the effects of this burning on the Terra ecosystem.
Introduction
The Terra ecosystem rests on the algorithmic mint-burn relationship between its native LUNA token and UST, its flagship stablecoin tethered to the price of 1 USD.
To mint every $1 worth of UST, a $1 worth of LUNA token is burned, an event known as an on-chain swap (source). As a result, on-chain LUNA<>UST (or vice versa) swaps affect the market scarcity of these tokens. For example, when more UST minted, more LUNA is burned, creating more scarcity of LUNA and less scarcity for UST, thus the price of LUNA increases and the price of UST decreases closer to peg. This mechanism keeps UST price returning to the 1 USD peg when it deviates slightly up or down.
Method
This analysis calculates weekly LUNA burn since the beginning of 2022. I aggregate the LUNA that's offered to burn to this address terra1vs9jr7pxuqwct3j29lez3pfetuu8xmq7tk3lzk (the mint/burn contract address).
Acknowledgments: This SQL query is a modified and abridged version of the query by mydomino85 in this analysis.
Data Analysis & Commentary
The week when the most LUNA (13M) was burned in 2022 has been the week of 21 February 2022. What happened that week?
LFG raised $1B for UST's Bitcoin reserve fund
On 22 February 2022, the Luna Foundation Guard aka LFG (Terra's governance foundation) announced that they'd sold $1B worth of LUNA to investors (source). This sale raised money for LFG to build up a currency reserve in Bitcoin to further strengthen UST against market-driven price fluctuations (deviations from the $1 peg).
So, was it the new investors who immediately burned their $1B LUNA?
No, the $1B LUNA sold has been vested over the four-year period, so that this investment round does not wreak havoc onto the markets.
However, the burn of LUNA (and the corresponding mint of UST) on the day of announcement spiked sharply nevetheless. It appears that the outlook on UST, which had immediately become much more stable as a result of the reserve announcement, drove a sharp increase in UST purchases, which burned LUNA, and also as a result of this scarcity helped increase LUNA price (source) by 15% in a day.
Overall, the announcement of the $1B Bitcoin reserve to back Terra's UST has had a major effect on strengthening the Terra ecosystem short-term performance and long-term outlook.