While burning a financial asset might sound extreme, burning crypto tokens is a fairly common event.
Token burning is a strategy followed by cryptocurrency projects to influence the price of a token, or coin, in the market. This is done by permanently removing some tokens from circulation. While the major cryptos (Bitcoin and Ethereum) don’t have token burning programs, many strong Altcoins use it.
For instance, Binance has a target of burning 100 million BNB tokens, while there are similar practises for both USDT Tokens (issued by Tether) and XRP coins (issued by Ripple).
How does token burn work?
The goal of token burning is to remove a certain quantity of a token from the circulating supply.
One of the most popular ways crypto projects carry out a burn is to buy a certain amount of tokens from the market to get it out of circulation. These tokens are then transferred into a frozen private address called a Burn address. It’s a one-way address with no ability to reverse the transaction or withdraw the coins — the burn address to which the tokens are sent can never be recovered because there is no private key corresponding to that address. For all practical purposes, the asset no longer exists — it has been “burned”.
A good example is the BNB, XPR and XLM, Even stablecoins like USDT, GUSC, USDC and HUSD have conducted burns of over $2.8 billion. This provides transparency of the reserves once funds are added or retired. When there is a deposit in reserves, tokens are minted. The burning happens when the coins minted into the reserve are withdrawn, regulating the circulating supply and keeping the balance stable.
What are the benefits of token burning?
There are several benefits of token burns.
The most well-known benefit is that token burns may result in the value of the coin increasing. The corresponding increase in the value of each Token unit demonstrates that token burns impact the price of a coin, at least in the short term.
From the community angle, you could argue that token burns are a form of airdrop due to the value of community holders’ tokens increasing. For example, Project X conducts a token burn. Afterwards, the supply reduces and the value of the token appreciates by 10%. Accordingly, this has made every community holder’s token more valuable than it was before the burn. Hence, Mr Y who holds 1,000 units of Project X tokens would have had the value of his holdings appreciated by 10%, even though he still holds his original 1,000 units. In essence, Project X just did an airdrop to every token X holder who didn’t need to spend a dime to increase the value of their holdings. Perhaps, this is one of the reasons community members are endeared to projects that announce they will conduct periodic token burns. Many projects even employ this as one of their marketing tactics.
Trust and confidence in the project is a key element. This is where, for example, during the ICO stage, it is common to find the burning process is done once the token or coin is finally launched to provide the new investors with the reliability that their fund will not be affected by an over circulation
BOX & DEX burn
It is no coincidence that the token burn has been chosen as a strategy for the future by two of the major projects of the EOS network: Defibox and Newdex. Although EOS recently raised inflation to fund EOS Foundation projects, Defibox and Newdex have kept their token reduction strategy as promised a long time ago. Let’s see in detail how things are developing.
According to Defibox Whitepaper V4.0, the total BOX token supply is 5 million, the token issuance mechanism will ensure that the total supply of BOX on all the chains on which Defibox is moving remains below 5 million. In other words: BOX token on EOS + BOX token on BSC + possible BOX token on HECO + possible BOX token on ETH + possible BOX token on Matic, altogether will sum to < 5 million. Since Defibox is becoming multi-chain, if a large amount of BOX token is transferred to other chains, the circulating supply of BOX token on EOS chain will be massively reduced, contributing to an appreciation of its value. This is technically not a token burn but a seizure of tokens from one network in favor of the others, but obtaining a similar result.
Defibox however also has an intrinsic burn mechanism in its protocol, using the income from Swap, USN and Lend fees to buy BOX from current circulating supply, then sending it to the contract retire.defi. In retire.defi the “retire” command is executed and those BOX token cannot be transferred, sold, or moved anymore. Those token are retired or as we prefer: burned. This is why the max supply is still 5 million, but the actual supply is less than that amount. If you want to check by yourself how many BOX tokens have been burned, you can go to defibox, scroll down and find “Token Issuance” then click on details.
According to Newdex Whitepaper V2.0, after a previous historic token supply reduction from 1 billion, the total supply of DEX token is now 100 million. As happens to BOX, also Newdex tries to increase the value of its DEX tokens with a continuous buyback and burn.
The buy-back is financed by a lot of different sources:
- 50% of the revenues coming from Newdex transaction fees
- DEX fees of DEX related pairs
- Newdex VIP membership where DEX are burned by users to rank up.
- 25% of Newdex Pool EOS/TRON/IOST fees
- 10% of Defibox protocol revenue, because you know there is a strong collaboration between the two dapps.
- Newdex Seed investment earnings
After 3 years Newdex is still rocking and fighting to maintain its well deserved place in full sun in this crypto world.
LINK NEWDEX:
Newdex.io , Newdex.vip or bscdapp.newdex.io
Knowledge Base:
Social:
LINK DEFIBOX:
defibox.io or bscdapp.defibox.io/
Knowledge Base:
Social:
Defibox BSC Community Telegram
Feel free to share with anyone who wants to learn more about Newdex & Defibox
Cheers :)
By TeamRekt
