Binance, the largest cryptocurrency exchange by volume, announced it had implemented its first-ever Binance token (BNB) auto-burn program last quarter, where 1,684,387.11 BNB tokens worth $783 million were removed from circulation.
Under the new program, the number of tokens to be burned is arrived at using a formula based on the total number of blocks produced on the Binance Smart Chain, a blockchain with smart contracts functionalities and running parallel to Binance Chain, and BNB’s average dollar-denominated price during the quarter.
Cryptocurrency tokens or coins are considered “burned” when they have been purposely and permanently removed from circulation. Token burning is usually performed by the development team behind a particular cryptocurrency asset. It can be done in several ways, most commonly by sending the coins to a so-called “eater address” where its current balance is publicly visible on the blockchain, but access to its contents is unavailable to anyone.
The practice of burning may involve the project’s developers buying tokens back from the market or burning parts of the supply already available to them.
Burning can be done with different goals in mind, but most often it is used for deflationary purposes: the decrease in the circulating supply tends to drive an asset’s price upward, incentivizing traders and investors to get involved. Another important use case for token burning is to maintain the price peg of stablecoins (cryptocurrencies whose value corresponds to another asset, like the U.S. dollar).
Since BNB and Binance launched in 2017, Binance has committed to removing 100 million BNB, or half of the total supply from circulation, through a process called burning. Unlike our previous quarterly burns, the number of tokens removed for this quarter was automatically calculated according to the Auto-Burn formula.
In the past, BNB burns reflected the tokens’ usage and revenue generated in the Binance centralized exchange. As a result of the community’s feedback, the BNB Auto-Burn effectively replaces the previous burn mechanism in favour of a more objective process independent of the Binance centralized ecosystem.
In the announcement, Binance stated that BNB will still continue to burn a portion of Binance Smart Chain’s (BSC) gas fees in real-time.
Changpeng Zhao (CZ), co-founder and CEO of Binance stated, “The implementation of the BNB Auto-Burn is a natural next step in BNB’s journey and will help the BNB community grow through providing greater autonomy, transparency and predictability.”
Binance CEO, who recently got a valuation of $96 billion according to Bloomberg’s Billionaire Index, also tweeted along side the announcement, “BNB is deflationary.” The BNB token trades $465, down 3.38% as of the time of this writing.
