By Chyung Eun-ju and Joel Cho
The fall of the "stablecoin" Luna has shifted the opinion of many regarding cryptocurrency and generated a lot of uncertainty about the future of digital currencies.
The crash of Terra-Luna has had devastating consequences and even led to tragic consequences for some of its investors. At the center of it all is Do Kwon, the CEO of Terra, who has been making moves to try to revive the ecosystem he created.
Among his recent announcements, Kwon tweeted on May 21 a dead wallet address where people could transfer their Luna tokens for burning. Around 289 million Luna coins were sent to the burn address with up to 2,719 transactions, according to Coinpedia. Two days later, Kwon explained in a tweet, "To clarify, as I've noted multiple times I don't think sending tokens to this address to burn token is a good idea ― nothing happens except that you lose your tokens" seemingly contradicting the intention of his earlier tweet.
To clarify cryptocurrency burning is the process of permanently pulling out the token from circulation by transferring the tokens to a so-called "dead wallet," which consequently reduces the number of a specific coin in use. These dead wallets are unlocatable, which results in the token being lost and irretrievable, which essentially burns ― destroys ― the token.
Burning Luna began as Luna's circulating supply increased to over 6.5 trillion coins, so with the devastating crash, a lot of holders turned to burning Luna to decrease supply and try to increase its value by making the coin more scarce.
Although unorthodox, this process may be an effective solution for recovering the price of a devalued coin and it has been taking place prior to the Luna crash. For instance, in the case of Shibu Inu coins, a burning portal was made available to the SHIB community since April as a measure to decrease the number of coins in circulation and try to regain its value.
The success or failure of this measure, however, is difficult to observe, as there are various complex factors that contribute to the valuation of cryptocurrency, for instance, in order for crypto burning to be truly effective, the demand must stay constant.
In theory, considering the law of demand, crypto burning should bring positive results, however, given the scenario we face today, where demand for cryptocurrency has fallen with the crash of Luna and the devaluation of various other cryptocurrencies, it becomes difficult for experts to securely conclude on the effectiveness of cryptocurrency burning.
Looking at the bigger picture, the reality is that we are treading through uncharted territory when it comes to digital assets. There are not enough precedents to make affirmative conclusions, which is directly reflected by the instability of the crypto market.
Another relevant matter to consider, as pointed out by Kwon's recent tweet, is that burning tokens does just that ― it burns tokens. So at the end of the day, the holder willing to burn their token in order to recover its value in the market, is essentially burning money in hopes of recovering the investment they made and for a lot of Luna investors, this seems to be one of the few options they have today.
Chyung Eun-ju (ejchyung@snu.ac.kr) is studying for a master's degree in marketing at Seoul National University. Her research focuses on digital assets and the metaverse. Joel Cho (joelywcho@gmail.com) is a practicing lawyer specializing in intellectual property and digital law.
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| Chyung Eun-ju |
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| Joel Cho |
The crash of Terra-Luna has had devastating consequences and even led to tragic consequences for some of its investors. At the center of it all is Do Kwon, the CEO of Terra, who has been making moves to try to revive the ecosystem he created.
Among his recent announcements, Kwon tweeted on May 21 a dead wallet address where people could transfer their Luna tokens for burning. Around 289 million Luna coins were sent to the burn address with up to 2,719 transactions, according to Coinpedia. Two days later, Kwon explained in a tweet, "To clarify, as I've noted multiple times I don't think sending tokens to this address to burn token is a good idea ― nothing happens except that you lose your tokens" seemingly contradicting the intention of his earlier tweet.
To clarify cryptocurrency burning is the process of permanently pulling out the token from circulation by transferring the tokens to a so-called "dead wallet," which consequently reduces the number of a specific coin in use. These dead wallets are unlocatable, which results in the token being lost and irretrievable, which essentially burns ― destroys ― the token.
Burning Luna began as Luna's circulating supply increased to over 6.5 trillion coins, so with the devastating crash, a lot of holders turned to burning Luna to decrease supply and try to increase its value by making the coin more scarce.
Although unorthodox, this process may be an effective solution for recovering the price of a devalued coin and it has been taking place prior to the Luna crash. For instance, in the case of Shibu Inu coins, a burning portal was made available to the SHIB community since April as a measure to decrease the number of coins in circulation and try to regain its value.
The success or failure of this measure, however, is difficult to observe, as there are various complex factors that contribute to the valuation of cryptocurrency, for instance, in order for crypto burning to be truly effective, the demand must stay constant.
In theory, considering the law of demand, crypto burning should bring positive results, however, given the scenario we face today, where demand for cryptocurrency has fallen with the crash of Luna and the devaluation of various other cryptocurrencies, it becomes difficult for experts to securely conclude on the effectiveness of cryptocurrency burning.
Looking at the bigger picture, the reality is that we are treading through uncharted territory when it comes to digital assets. There are not enough precedents to make affirmative conclusions, which is directly reflected by the instability of the crypto market.
Another relevant matter to consider, as pointed out by Kwon's recent tweet, is that burning tokens does just that ― it burns tokens. So at the end of the day, the holder willing to burn their token in order to recover its value in the market, is essentially burning money in hopes of recovering the investment they made and for a lot of Luna investors, this seems to be one of the few options they have today.
Chyung Eun-ju (ejchyung@snu.ac.kr) is studying for a master's degree in marketing at Seoul National University. Her research focuses on digital assets and the metaverse. Joel Cho (joelywcho@gmail.com) is a practicing lawyer specializing in intellectual property and digital law.
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