Introduction

In this bounty, I will look into what happens when LUNA is burned to create UST, on both the UST supply and LUNA price.

I will then try to speculate about the selected time period that probably took place.

Effect on Price

Let's first look at what is the effect on price when LUNA is burned.

The following graph contains LUNA burned on the y-axis, LUNA price as the colour of the markers and UST supply as the size of the markers.

What this graph shows us is the correlation between 3 different parameters. In this one, the most relevant one is the UST Supply increase (marker size) with the price of LUNA (colour). What we can see is that the LUNA burned has some correlation with the UST Supply (size), but this is the most we can get from this graph.

UST and LUNA Supply

Let's now look at the difference (day(t) - day(t-1)) of UST and LUNA supply on the same graph.

What we can see is that there is some correlation between the UST supply mint on November 8th and 9th, but right after the increase in UST supply and decrease in LUNA supply, we get a massive increase in LUNA supply, which indicates some sort of LUNA supply minting right after the burn.

In other moves, i.e. December 3rd we can see that LUNA supply increased as well as UST supply, this is not really a good way to tell if the burn mechanism is working and what it is doing, as some of these could be transactions, swaps for/from other tokens internally.

Diff UST, LUNA, LUNA burned

Following the above observation let's add the LUNA burned in $ difference as well on the y-axis and investigate the actual correlation.

What we can see on the above graph is the heavy correlation between DIFF_LUNA_BURNED_USD and DIFF_UST_SUPPLY, which indicates that the mechanism works, indeed. It is good to also see that on Jan 19th there is a decrease in UST supply that matches an increase in LUNA supply.

The biggest oddity about the above graph is on the 9th of April, which shows an increase in UST supply with very little movement on the LUNA burned, there is a LUNA burn, post that, but that follows a different UST supply move. Honestly, I am a little confused about this one and would like some clarity.

It could be that we are not accounting for some other parameter, like UST burned for LUNA, but in this case, it should be LUNA burned for UST.

The week that the most volume of Luna burning happened

For that we'll need to look at the weekly charts.

The most interesting week as we see above is that before and up to the 15th of November. This is directly correlated to this LUNA Burn Proposal.

"The “burning,” or permanent removal of the tokens from circulation, will be executed over the next two weeks, with an initial burn of 520,000 LUNA that already took place Tuesday night. At press time, LUNA was changing hands at $53.74, up 7.03% in the past 24 hours, according to TradingView and Binance. Its price set a new record high $54.95 at around 11 a.m. ET (16:00 UTC) Wednesday."

This is what can be seen in the above graph.

Summary

Overall, there is a great correlation, especially right after that massive burn. I would really like to know the key milestones of what each proposal did to the burn mechanism and what that in turn did to the UST and LUNA supply. Maybe that could be added in the Terra console that Flipside has?

Some of these oddities would be interesting to investigate in an hourly basis as well, as that could prove to be more insightful.