The price of Terra (LUNA) nearly reached a record high on Wednesday after immediately Terra voted to burn tokens worth $4.5 Billion. However, it later turned red following a rise in market volatility.
At the time of writing, the LUNA price was up 1% after correcting the short dip.
Increasing market demand through burning
Decreasing supply sparks market demand and this is what is supposed to happen, therefore Terra voted to burn a sizeable percentage of tokens
The community is charged with maintaining the LUNA utility token protocol and terraUSD stablecoin developed by Terraform Labs.
Terraform labs developed token protocol and terraUSD stablecoin for the community to maintain LUNA utility.
The community on Tuesday voted to burn 89 million LUNA tokens worth about $4.5 billion.
After Terra co-founder Do Kwon proposal was approved, the token price shot up from $50 to beyond $54 coming close to its all-time high of $54.77 before the crypto price broke down.
The price dropped to 14% in a few hours with LUNA leveling off to around $48 and a market cap of $23.5 billion.
LUNA token burn
LUNA is a utility token for decentralized applications built on the Terra blockchain.
One of the primary uses of LUNA is to maintain a 1.1 peg with Terra’s algorithm stablecoins and is burnt when stablecoin demand increases.
It is anticipated that the value of LUNA will rise higher after the successful vote to burn LUNA tokens worth over $25 million was taken out of circulation and the remaining 88+ million to be burned in the next two weeks.
The plan laid by the Columbus-5 network upgrade changed how and when Terra burns tokens.
Instead of transferring LUNA to a community pool, LUNA will be used to mint the Terra stablecoin which would be permanently burned.
Terra's burning strategy isn't new, Ethereum also had luck burning its coins. London hard fork in August carried out EIP-1559, a measure that redirects transaction fees away from the miners that validate transactions and into an inaccessible wallet, in this process, the ETH is effectively destroyed.
After the deflationary measure, the price of Ethereum has increased by over 60%, hitting fresh record highs all the way. Terra users are also hoping for similar returns.