Binance CEO Changpeng Zhao (CZ) was asked if Binance was ever going to apply the 1.2% tax on Terra Luna Classic (LUNC) off-chain trades.
CZ answered the question during a Twitter AMA, stating that Binance would add an opt-in button for those wishing to apply the burn. However, he later posted a blog post to introduce a “voting” mechanism on the burn.
Binance announced that it would only apply the 1.2% tax burn to on-chain transactions such as deposits and withdrawals on Sept. 9. CZ started his latest post that off-chain exchange trades were not included as it would deter users from trading LUNC on Binance.
CZ mentioned the involvement of game theory and said the tax burn wouldn’t work unless all centralized exchanges in the world apply it. He wrote:
“If Binance charged 1.2% per transaction, I don’t think we would burn very much because most LUNC traders would go to other exchanges that don’t have the burn.”
With that being said, CZ also acknowledged LUNC holders’ desire to see a decrease in supply and showed his willingness to listen to the Binance community.
Opt-in for the burn
In his blog post, CZ introduced a three-step plan to decide whether to apply the tax burn or not.
The plan’s first step is implementing an opt-in button for the LUNC tax burn. This button will be visible to LUNC holders, and they can switch it on if they want to burn 1.2% of their LUNCs in each transaction.
If the number of users who choose to implement the tax burn exceeds 25% of the total LUNC held on Binance, then the exchange will move on to the second step, which charges the 1.2% tax burn for all traders who choose to opt-in for it.
This burn will only apply to those willing to burn their tokens. CZ explained the necessity of this step by stating:
“This prevents people who don’t hold LUNC to affect the votes. It also gives the early adopters peace of mind that they are not the only few paying an extra 1.2%. The tax only kicks in at 25% quorum. This should encourage them to opt in more easily”
Finally, if the number of users who opt-in exceeds 50% of the total LUNC held on Binance, then the third step of the plan will be initiated to apply the tax burn on all LUNC transactions within Binance.
CZ concluded that if the required 50% in the second step is not reached within a month of the completion of step 1, the opt-in button will be removed completely.