What is a Token Burn?

The meaning of token burn refers to a process in which a certain number of tokens are permanently removed from circulation in order to decrease the supply, and in turn, increase the value of the remaining tokens. This process can be instigated by the issuer of the tokens, or by the members of the community, depending on the particular project.

The primary purpose of a token burn is to increase the underlying value of the token. By removing tokens from circulation, the remaining tokens become more valuable. This can be done to incentivize holders, boost token prices, and increase the overall demand for the token.

Token burns are often scheduled in phases, with a certain number of tokens being removed from circulation at set periods. This allows the market to adjust to the changes in price and supply, and prevents shockwaves in the market.

The burning process itself is usually automated by the smart contracts running on the blockchain, so the process is systematic and secure. The transactions are visible to the public and can be checked on the blockchain.

Token burns also have the added benefit of distributing the tokens more fairly. By removing tokens from circulation, the holder distribution is not as concentrated, making the tokens more decentralized. This helps ensure that the tokens are more secure and stable, as the holders are spread out and less likely to be affected by any negative external events.

At the same time, token burns can also be used to return funds to early investors and founders, creating a more equitable and fair system. This can be done by creating a vesting period for the tokens, with a certain percentage of the tokens being burned after a predefined period of time.

Token burns are becoming increasingly popular within the crypto industry, as they provide an effective and secure way to increase the value of tokens and create a more equitable system. In addition, they also provide an extra layer of security as the tokens are semipermanently removed from circulation.

Simplified Example

Imagine you have a large pile of paper coupons that represent your tokens in a cryptocurrency. A token burn is like taking some of those coupons and lighting them on fire, making them permanently unusable and reducing the total supply of tokens. This process can have a positive impact on the value of the remaining tokens, just like if a store was offering a limited number of coupons and burned some of them, it would increase the scarcity and value of the remaining coupons.

History of the Term Token Burn

The term "token burn" emerged in the realm of cryptocurrency, coinciding with the rise of blockchain technology and the issuance of various digital tokens. As the cryptocurrency landscape evolved, developers and enthusiasts sought ways to control the supply of tokens in circulation, thereby influencing their value and scarcity. The concept of token burning emerged as a mechanism to permanently remove tokens from circulation, reducing the overall supply and potentially increasing the value of the remaining tokens.

The exact origin of the term "token burn" is uncertain, but it is believed to have emerged in the early 2010s, as the concept of token economics and supply management gained traction among cryptocurrency projects. One of the earliest documented instances of a token burn occurred in 2013, when the Ethereum Foundation burned a portion of its ether (ETH) holdings to reduce the circulating supply.

Examples

Binance Coin (BNB) Burn: Binance, one of the largest cryptocurrency exchanges, conducts periodic burns of its native token, Binance Coin (BNB). The exchange uses 20% of its profits to buy back and "burn" BNB tokens, effectively reducing the total supply of tokens in circulation.

TRON (TRX) Burn: TRON, a decentralized blockchain-based platform that focuses on content sharing, also conducts periodic token burns. TRON's protocol automatically burns a small amount of TRX every time a user creates a new account or transfers TRX to another user.

Basic Attention Token (BAT) Burn: The Basic Attention Token (BAT) is a cryptocurrency used in the Brave browser ecosystem. BAT is designed to reward users for viewing online ads and content. When a user views an ad, they receive BAT tokens, and when a publisher receives BAT tokens, they can use them to advertise on the Brave platform. Periodic token burns are used to decrease the total supply of BAT tokens in circulation and maintain their value.

Related terms

• Dead Coin: A Dead Coin is a cryptocurrency that is no longer tradable. This means that people can no longer buy or sell the coin on any cryptocurrency exchange.

• Max Supply: Max supply refers to the maximum amount of a cryptocurrency that will ever be in circulation. It is a fixed limit set by the cryptocurrency's creator or developer team and is encoded in the cryptocurrency's underlying code.