Cryptocurrencies have unique mechanisms for managing their token supplies and maintaining their value, one of which is coin burning. In the case of BNB, the native cryptocurrency of the Binance exchange, Binance burn plays a crucial role in managing its supply and increasing its value. In this article, we will explore what coin burning is, why Binance burns BNB and how the process works.
What Does It Mean to Burn Crypto?
A coin burn is a process that involves the deliberate removal of a certain amount of cryptocurrency from circulation. These tokens are sent to specific addresses known as "burners" or "eaters," rendering them inaccessible and essentially non-existent. This practice is akin to a buyback of company shares in traditional finance, where a company repurchases its own stock to reduce the circulating supply and potentially increase the value of the remaining shares. However, the key distinction is that the repurchased stocks remain under the company's ownership, while burned coins are permanently destroyed.
Notable cryptocurrency projects, including BNB, Ethereum, Shiba Inu, and other altcoins as well as various algorithmic stablecoins, have incorporated burning mechanisms into their protocols. Coin burns serve several purposes, such as:
- Reducing the circulating supply: By destroying a portion of tokens, the remaining ones become scarcer, potentially leading to increased value.
- Eliminating unneeded or unwanted tokens: Cryptocurrency projects may burn surplus tokens to streamline their supply.
- Demonstrating commitment: Conducting regular coin burns can showcase a project's dedication to its goals and investors.
- Mitigating high inflation rates: For cryptocurrencies with high inflation rates, coin burns can help counterbalance excessive token issuance.
- Supporting proof-of-burn blockchains: In proof-of-burn blockchains, participants can create new blocks by burning existing tokens.
Why Does Binance Burn BNB? The BNB Burn Strategy Explained
Binance Coin (BNB) initially emerged as a utility token, primarily facilitating discounted trading fees on the Binance exchange. However, Binance didn't stop there. They strategically implemented a BNB burn mechanism, adding a layer of depth to the digital asset’s value proposition and instituting a deflationary model. This innovative move was aimed at not only reducing the circulating supply of BNB but also at amplifying its scarcity, potentially driving its value to new heights over time.
BNB's journey started with an initial total supply of 200,000,000 tokens. Yet, this number is gradually dwindling due to a series of planned coin burns. These burns are set to continue until 50% of the total supply is systematically obliterated, effectively bringing the count to just under 100,000,000 BNB. It's a strategic move that's poised to have a significant impact on BNB's overall ecosystem.
If you want to learn how to purchase BNB, read our article: “How to Buy BNB (Binance Coin).”
BNB Burning Mechanisms
Two distinct methods are employed when it comes to BNB burn, each contributing to the strategic reduction of its supply:
Quarterly BNB Burns
Historically, these burns were intricately tied to the trading volume on the Binance exchange. The process entails the calculation of the amount of BNB to be burned, based on the profits generated by Binance during the quarter. Quarterly Binance coin burns have been instrumental in consistently decreasing the circulating supply of BNB over time. Since the inaugural burn in October 2017, which incinerated 986,000 BNB, these quarterly events have steadily chipped away at the token's availability. The specifics of each burn are pre-announced, taking into account factors like overall profitability, the BNB circulating supply, and the number of blocks produced per quarter.
BEP-95 Burning Mechanism
With the introduction of the Binance Evolution Proposal (BEP)-95, Binance initiated another avenue for BNB burn. This method entails the real-time burning of BNB by dedicating a portion of the gas fees spent on the BNB Chain. This process became a response to the need for BNB's burn rate acceleration, ensuring it aligns with the planned trajectory. Since its implementation in 2021, BEP-95 has consistently burned around 860 BNB each day. By harnessing a portion of the gas fees collected by validators with each block, this mechanism ensures a steady and ongoing reduction of BNB tokens.
BEP-95's reliance on the BSC network means that it will continue to burn BNB even after reaching the ambitious goal of reducing the supply to under 100,000,000 BNB. Tracking the progress of BEP-95 burn events is made transparent through resources like the BNB Burns Tracker Bot on X (formerly Twitter).
The BNB Pioneer Burn Program
Within the framework of Binance's BNB burning strategy lies the BNB Pioneer Burn Program, a testament to Binance's dedication to its users' interests and the broader BNB ecosystem. Introduced in 2020, this program is specifically designed to address the unfortunate circumstances where users have unintentionally lost their BNB holdings. Through a set of criteria and a commitment to fairness, Binance endeavors to rectify these losses and seamlessly integrate them into the overarching burning strategy.
The core principle underpinning the BNB Pioneer Burn Program is the reallocation of tokens. In essence, tokens that would typically be destined for the quarterly auto-burn are redirected to eligible program applicants. By channeling these lost tokens into the program, Binance harmoniously reconciles losses with gains within the broader burning strategy. This integration ensures that no BNB token's value is permanently lost, embodying Binance's commitment to its community.
BNB Pioneer Burn Requirements
The BNB Pioneer Burn Program operates on a set of user-centric criteria, carefully structured to encompass diverse scenarios of BNB loss:
- Tokens Lost via Wrapping or Pegging: The program extends its assistance to users who have lost tokens that were wrapped (e.g., wBNB) or pegged tokens (e.g., BTCB) and supported through the Binance "Token Canal" Project.
- Tokens Transferred to Verified BEP20 Contract Addresses: Binance extends support to users who have inadvertently transferred tokens to verified BEP20 contract addresses, as validated on bscscan.com.
- Honest Mistakes of Significant Value: Binance empathizes with users who have encountered losses due to genuine, honest mistakes. The program comes to their aid when these losses surpass a threshold of $1,000 but fall below the projected BNB Auto-Burn amount for the upcoming quarter.
Last BNB Burn
The BNB Chain has successfully executed its 24th quarterly BNB burn in 2023, which includes both the Auto-Burn and the Pioneer Burn Program. Here are the key details and statistics from this recent burn: The Auto-Burn phase incinerated a total of 1,991,854.33 BNB, effectively reducing its circulating supply.
When Does BNB Burn?
BNB burns occur quarterly, specifically in the months of January, April, July, and October.
BNB Burn – Conclusion
Binance's approach to BNB burning through a mix of strategic quarterly burns underscores its commitment to creating an ecosystem that thrives on transparency, predictability, and value maximization. By planning to reduce BNB's supply, Binance is engineering a path to greater scarcity and potentially exponential growth in BNB's value.
Related article: How to Convert BNB to USD or Other Coins?