Why Do Crypto Platforms Burn Their Own Coins?

Token burning involves the permanent removal of cryptocurrency tokens from circulation. It is often done by the issuers of crypto tokens to reduce their overall supply, which increases scarcity and subsequently boosts the token’s value.

However, the effect of token burns on their price extends far beyond plain tokenomics. Besides the shifts in the supply-demand ratio, token burns change the very way a project is perceived in the market.

What is a token burn?

A token burn refers to the intentional and permanent removal of a certain number of tokens from circulation. This process is typically done by sending the tokens to an address from which they cannot be spent or accessed.

When the tokens are burned, here’s what happens:

• Supply is reduced. The ultimate goal of a token burn is pushing the cryptocurrency price up. By decreasing the number of tokens in circulation, the project aims to create scarcity, potentially increasing the value of each remaining token. This can be seen as a deflationary measure.

  
  

• Scarcity is increased. A scarcer token can become more attractive to investors and traders, potentially driving up demand and, consequently, the token's price. Projects aim to create this perception of scarcity by reducing the supply through token burns.

  
  

Regular token burns are the cornerstone for many crypto platforms. These events are often scheduled, announced on social media, and widely discussed by the community.

Token burn market effects: More than just a supply-demand shift

One of the most immediate and often anticipated effects of a token burn is price appreciation due to the supply reduction. However, the burns also have an indirect impact on the cryptocurrency value in the long term. Here are some of these effects:

• Perceived scarcity. Token burns can create a perception of scarcity and rarity around the cryptocurrency, which can lead to increased interest and demand. Scarcity can make the token seem more valuable and attractive to potential buyers.

  
  

• Positive sentiment. Token burns are often seen as a positive development by the crypto community, as they signal that the project team is taking steps to enhance the value and sustainability of their token. Positive sentiment can attract more investors and users to the project.

  
  

• Long-term holders benefit. Token burns can benefit long-term holders of the cryptocurrency, as the reduced supply can potentially increase the value of their holdings. This can incentivize people to hold their tokens rather than sell them, which can contribute to price stability or even upward price trends.

  
  

• Project credibility. When done transparently and for valid reasons, token burns can enhance the credibility and trustworthiness of a project. This can lead to increased confidence from investors and users.

How crypto platforms burn their tokens

Every crypto project that values its investors should make an effort to maintain the price of its native asset. Doing regular token burns is one of the best ways to achieve that goal.

Binance: BNB Auto-Burn

BNB – the utility token powering the Binance ecosystem – was released with 200,000,000 tokens of initial supply. The platform’s goal is to reduce it by half.

One of the ways BNB is burned involves every transaction in the BNB Chain: a portion of the tokens spent as gas fees is removed from the supply.

Another method is called the BNB Auto-Burn. Previously, Binance used to make quarterly burns: the number of removed tokens depended on the trading volume on the exchange. After the Auto-Burn has been introduced, the burn amount is calculated based on the BNB price and the number of blocks produced during the quarter.

Binance has been doing quarterly burns since its inception – and recently implemented a newer, more transparent, and predictable burning algorithm. By constantly taking care of the BNB price, among other things, Binance has gained a reputation as of one the most stable enterprises in the market.

Ethereum

In 2021, Ethereum reinvented its fee model as it was preparing for the Merge – and other updates meant to make the network more scalable and efficient.

Since the EIP-1159 upgrade, a small fraction of ETH paid as gas fees is burned with every transaction. Although it’s a very small amount, it creates considerable deflationary pressure on the ETH price. As of September 2023, about 1.5 ETH is burned every minute, and a total of 3.6M ETH have been burned to date. This is believed to have a long-lasting effect on the Ethereum price.

Choise.com

Choise.com, a versatile cryptocurrency platform with 1M+ clients worldwide, has just burned the first 1 million of its CHO native tokens. This happens as Vault, the company’s white label B2B solution, is experiencing a spike in demand.

Vault allows crypto businesses and traditional financial institutions to integrate crypto banking operations – and save millions of dollars on development and years on licensing. Vault’s clients leverage the pre-made infrastructure to buy, store, and exchange cryptocurrencies, issue virtual and plastic VISA cards, and provide an effortless KYC experience.

The platform’s native CHO token is integrated into Vault client's crypto services. As the number of clients surges, CHO is becoming available on a multitude of platforms and gaining numerous use cases, which pushes its value in the long term. The CHO token burn is performed to support and reinforce this expansive growth.

Not the token burn alone

Doing the token burns itself doesn’t ensure the success of the project in the long run, nor does it guarantee the token price growth. Many other factors influence the asset’s price – from development efforts to overall market conditions. However, token burns allow a platform to improve the supply-demand balance and gain a positive perception in the market, which contributes to sustainable growth.