The hype around Terra Classic's staking service and new token-burning feature is helping fuel the LUNC rally.
Terra Classic (LUNC) has outperformed all top-ranking cryptocurrencies so far in September gaining nearly 100% in the past seven days alone.
The profits in the Terra Classic market appeared despite its association with the defunct Terra (LUNA) token, a $40 billion project that collapsed in May. Terra Classic is a rebranded version of the same Terra project and thus has been the subject of skepticism from analysts and investors since its debut.
But traders have ignored such warnings in recent weeks, with a flurry of fundamental catalysts influencing them to purchase LUNC.
A new staking service went live on the Terra Classic chain on Aug. 27, serving as the first major cue behind the ongoing LUNC price rally.
According to LuncStaking_Bot, users have staked more than 610 billion LUNC tokens with Terra Classic against its net supply of 6.9 trillion units. In other words, nearly 9% of the total LUNC supply has been removed from circulation.
Supply and staking of LUNC— LUNC staking (@LuncStaking_Bot) September 8, 2022
2022-09-08 17:30 UTC#LUNC
Data from StakingRewards show that staking Terra Classic is returning users with an annualized yield of 37.8%, among the highest payout in the crypto industry.
The higher returns could have played a key role in boosting LUNC demand, prompting the token's price to rise by more than 450% since the staking service launch, as shown in the chart below.LUNC/USD daily price chart. Source: TradingView
In addition to staking, Terra Classic developers have also introduced a token burning mechanism to boost LUNC's scarcity.
Terra Classic's community member Edward Kim proposed to impose a 1.2% transaction tax on LUNC on-chain transactions at the beginning of September. The proceedings made from this tax would eventually end up in a dead address, thereby permanently removing a portion of LUNC's supply from circulation.
Terra Luna Classic (#LUNC) skyrockets >37,000% since its bottom after the Terra collapse— Hailey LUNC ✳️ (@TheMoonHailey) September 7, 2022
This comes after a proposal to implement a 1.2% token burn tax on all transactions that will enable $LUNC to become a deflationary cryptocurrency.#LUNC ✨ #HaileyLUNC ✨ $LUNC ✨ pic.twitter.com/oIxI7tqVkW
Interestingly, there's already a LUNC burning mechanism in place that has permanently removed over 3.6 billion tokens out of circulation, according to LUNC Burner.
Nonetheless, certain technical indicators show that LUNC's price rally is at risk of correcting in the near term. These include its daily relative strength index (RSI), which crossed 90 on Sep. 8, an extremely overbought level that's typically followed by a price correction.LUNC/USD daily price chart. Source: TradingView
Also, the recent LUNC gains are accompanied by lower volumes, suggesting traders are unconvinced about the price rally's longevity.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.