Terra Classic Proposal to Rebalance Transaction Tax Aims to Strengthen On Chain Income and Long Term Sustainability
Terra Classic Transaction Tax Split Rework Explained
A new governance proposal suggests changing how the current 0.5 percent transaction tax on Terra Classic is distributed. The goal is to improve long term sustainability, strengthen network security, and increase on chain income that supports ecosystem growth.
The proposal does not change the total tax rate. Instead, it focuses on redistributing how the tax is allocated.
Current Transaction Tax Distribution
Today, every on chain transaction is taxed at 0.5 percent and divided as follows:
- 0.40 percent is burned
- 0.05 percent goes to the Oracle Pool
- 0.05 percent goes to the Community Pool
This means that 80 percent of the network income is permanently removed from circulation through burning.
While burning reduces supply, excessive burning can remove capital from the ecosystem without guaranteeing price growth if demand does not increase at the same pace.
Why Change Is Being Proposed
The current tax split creates several long term challenges:
- Removes liquidity from the market
- Reduces available funding for development and ecosystem growth
- Discourages large transactions due to higher friction
- Lowers staking rewards and weakens network security
As a Proof of Stake blockchain, Terra Classic depends heavily on strong validator participation and reliable oracle rewards. Without sufficient funding, long term decentralization and security could be at risk.
Proposed New Tax Split
The total transaction tax remains 0.5 percent and would be redistributed as follows:
- 0.10 percent Burn
- 0.20 percent Community Pool
- 0.20 percent Oracle Pool
Burning remains part of the system, but more funds are redirected toward strengthening the ecosystem.
How the New Allocations Would Be Used
Burn Allocation 0.10 Percent
- Maintains ongoing supply reduction
- Keeps deflation tied to real network activity
Community Pool Allocation 0.20 Percent
The Community Pool would support ecosystem growth and market stability:
- Decentralized exchange liquidity
- Market support and stability initiatives
- Infrastructure development, upgrades, and audits
- Marketing and legal support
- Collateral growth and ecosystem programs
All spending would remain transparent and require governance approval.
Oracle Pool Allocation 0.20 Percent
- Stabilizing oracle rewards
- Encouraging validator participation
- Maintaining reliable price feeds
- Reducing reliance on shrinking reserves
Core Idea Behind the Proposal
- Maintain controlled deflation
- Improve liquidity and trading conditions
- Strengthen staking rewards and security
- Fund development and long term growth
Why This Proposal Matters
Income flowing into the Community Pool and Oracle Pool continues to decrease because a large portion of transaction tax revenue is burned instead of being redirected to ecosystem funding.
By increasing the tax share allocated to these pools, the proposal aims to increase on chain income and provide sustainable funding for security, development, and ecosystem expansion.
Final Goal
- Maintain controlled burning
- Support liquidity and market growth
- Prevent oracle reward depletion
- Reduce the risk of needing inflation in the future
The proposal represents a shift toward balancing deflation with sustainable funding to support the future growth of Terra Classic.
