The Terra Classic (LUNC) community proposed a 1.2% tax burn on all on-chain transactions to address the token's massive oversupply. Binance CEO Changpeng Zhao (CZ) initially responded in a way that sparked community outrage, forcing the exchange to quickly issue a formal statement regarding the proposal. This article explores the events that unfolded and the reasons behind the sudden change in stance from one of the world's largest cryptocurrency exchanges.
Understanding the LUNC Burn Tax Proposal
The Terra Classic community officially launched the proposal on September 21st. The primary goal was to implement a 1.2% tax burn on all transactions to drastically reduce the token's enormous circulating supply.
From the first day, the results were underwhelming, with less than $2,800 worth of tokens burned. The community intensified its efforts, strongly urging major centralized exchanges (CEXs) to support the tax mechanism.
The proposal mandated that a 1.2% transfer fee be applied to all transactions on the Terra Classic chain, including transfers between wallets. Crucially, it also called for this tax to be applied to trades on centralized exchanges. Since the vast majority of LUNC trading volume occurs on major platforms like Binance, Kucoin, and Gate.io, the proposal's success hinged entirely on their cooperation. Without exchange support, the 1.2% tax would have a negligible impact on LUNC's 6.9 trillion token supply.
How Major Exchanges Responded to the Burn Tax
The response from leading exchanges was critical for the proposal's viability. Here’s a breakdown of their initial positions.
FTX
FTX had not made any clear public statement indicating whether it would support or implement the burn tax mechanism.
Kucoin
Kucoin announced that depositing LUNC and USTC into its exchange would not incur any fees. The burn tax would only be applied at the moment of user withdrawal. The exchange clarified that internal trading and related services for these tokens would not be affected by the tax.
It's important to note that deposits to an exchange are typically free; only on-chain gas fees apply when moving tokens from a wallet. The tax is levied during withdrawals because that action requires an on-chain transaction, which is exactly what the community's proposal targeted.
Gate.io
This platform stated it would deduct the 1.2% tax when users sent (deposited) and withdrew LUNC tokens. This meant a user transferring LUNC to Gate.io could potentially pay 2.4% in fees: the standard on-chain gas fee plus the new burn tax. Spot and futures trading for LUNC on the exchange would continue as normal, with no additional tax.
Crypto.com
Crypto.com's approach mirrored Gate.io's, applying the 1.2% tax on deposits and withdrawals. However, the exchange did not explicitly state whether spot trading of LUNC would be subject to the new tax.
The collective stance was clear: major centralized exchanges were largely unwilling to integrate the 1.2% burn tax into their internal trading engines.
CZ and Binance's Initial Reaction
Binance CEO Changpeng Zhao initially expressed significant skepticism. He argued that the burn mechanism would only be viable if all major centralized exchanges agreed to implement the 1.2% tax on their off-chain trades.
His reasoning was straightforward from a business perspective: if Binance added a 1.2% fee to every LUNC trade while competitors did not, traders would naturally migrate to those other platforms to avoid the higher cost. Traders consistently make decisions that maximize their own financial advantage.
The Impact of a 1.2% Fee
To understand the magnitude of this fee, consider standard exchange trading rates. On many platforms, a standard taker fee for a regular user (VIP 0) can be as low as 0.01%. A 1.2% fee is 120 times larger than that standard rate. Such a dramatic increase would make trading LUNC on an implementing exchange highly unattractive from a cost perspective.
Community Outrage and the #BoycottBinance Movement
CZ's pragmatic response was met with fierce criticism from the LUNC community. Feeling let down by the largest exchange for LUNC trading, community members launched a vocal campaign on social media.
The backlash was swift and severe. The hashtag #BoycottBinance began trending on Twitter (now X) as thousands of community members expressed their anger. Prominent figures within the community amplified the message.
One member with 42,000 followers, CryptoKing, stated: "Without the #BoycottBinance movement, CZ would never have suggested the opt-in option for $LUNC traders. I did my part.... We are taking on Binance! Let's do this, LUNC army!"
Another member, LUNC 100$ AGAIN, criticized CZ directly: "#BoycottBinance Changpeng Zhao is not only arrogant but also a liar."
Binance's Reversal: A New Burn Plan
Under intense public pressure, Binance swiftly pivoted. The exchange announced a new plan to support the LUNC supply reduction effort without compromising the user trading experience.
Instead of taxing users, Binance decided to burn all trading fees collected from LUNC/BUSD and LUNC/USDT spot and margin trading pairs. The exchange would convert these fees into LUNC tokens and send them directly to the burn address.
CZ announced the decision on Twitter: "We decided to start burning all trading fees on LUNC/BUSD and LUNC/USDT spot and margin pairs... The burn fees are paid by Binance, not users. This way we can be fair to all users. Trading experience and liquidity remain unchanged, and Binance can still contribute to the LUNC supply reduction, which is what the community wants."
This move was immediately seen as a positive development for users. It directly contributed to the token's deflationary pressure without imposing any new costs on traders. For Binance, it was a strategic public relations victory, effectively defusing the widespread negative coverage.
However, it's crucial for investors to recognize that volatility and risk remain high. The sudden reversal of stance—from a rejected proposal that contributed to a price drop to a favorable burn announcement—highlights the speculative and reactive nature of the market.
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Frequently Asked Questions
What was the original LUNC burn tax proposal?
The Terra Classic community proposed a 1.2% tax on all on-chain transactions, including trades on centralized exchanges. The collected tokens would be permanently burned to reduce the total supply.
Why did Binance initially oppose the tax?
Binance CEO CZ argued that implementing the tax unilaterally would drive traders to competing exchanges that did not charge the fee, putting Binance at a competitive disadvantage.
What changed Binance's mind?
Intense community backlash and a widespread #BoycottBinance social media campaign pressured the exchange to find a compromise that supported the community's goal without harming its users.
How does Binance's new burn plan work?
Binance now takes all trading fees from LUNC/BUSD and LUNC/USDT spot and margin trades, converts them to LUNC, and sends them to a burn address. This cost is absorbed by Binance, not the user.
Did other exchanges support the original 1.2% tax?
Most major exchanges, including Kucoin and Gate.io, were reluctant to apply the tax to internal trades. They primarily agreed only to apply it to on-chain withdrawals, which limited its effectiveness.
Is LUNC a good investment now?
While the burn mechanism is a positive step, LUNC remains a highly speculative asset with significant risk. Its price is subject to extreme volatility, and investors should conduct thorough research and exercise caution.
Investment Disclaimer: All investment strategies carry risk. It is important to conduct your own research and consider your financial situation before participating in the crypto market. This information is not intended as financial advice.