Binance burns its BNB tokens – What is token burning and what is it for?

The world of digital currencies is becoming increasingly dense and strategically significant. The market of cryptocurrencies is dominated by some top virtual currencies that set the benchmark for the market. The efforts to increase the demand for cryptocurrencies by the creators make the crypto market volatility even more drastic.

Token burning is not a popular practice among cryptocurrencies, but many altcoins have been involved in the process. In simple words, token burning takes place when the crypto company wants to reduce the supply of digital currency in the market, and it is mostly done by buying a certain amount of tokens from the market, in order to eliminate them from circulation.

Binance Burns $ 600 Million Worth of BNB tokens

Binance is one of the most well-reputed and globally recognized virtual currency trading platforms. The exchange is considered to be the largest cryptocurrency exchange in terms of trade volume. Crypto traders all over the world are connected with Binance. The exchange offers several cryptocurrencies, with safe and easy crypto trading opportunities.

The biggest news regarding the token burning so far is associated with Binance’s claim to burn BNB tokens worth $ 600 Million. The latest quarterly burn by Binance Exchange is considered the highest one that has ever been recorded in dollar terms. Out of 200 million BNB tokens almost 15 % have been burned during the process. According to the research, more than 30% of the tokens are expected to burn in upcoming years.

The burn session from January to March 2021, was the 15th burn of BNB tokens. The overall BNB supply is affected by the burn of almost 1 million tokens. When the BNB project started, there were almost 200 Million coins, out of which around 100 million were released during the ICO, 20 Million were in the share of private investors and 80 Million were distributed to the project founding team.BNB tokens had a great start at the beginning of 2021, the token price skyrockets from $ 37 to $ 640 setting the all-time high record. There is still much room left for the Binance coin to go up.

What is Tokens burning and what is it for?

Token burning refers to the removal of existing virtual currency coins from circulation. It is not a difficult process and considered very common in the crypto industry. Token burning is done on purpose by the creators, in order to eliminate a certain number of existing tokens from circulation.

There are various reasons behind the process of token burning, the most important one indicates deflation. This means that coins are burnt in order to slow the inflation rates. This technique is not used by large blockchains like bitcoin and Ethereum. Most of the cryptocurrencies involved in token burning do not have a considerably huge impact on the crypto market. Token burning practice is usually done by small exchanges in order to control the coins in circulation. This technique is unique in the virtual currency environment as traditional tangible currencies are not exactly burned.

The way regular currency regulation works is quite different as compared to digital currencies. Token burning could be understood with the example of a stock market. In the stock market, the company buys the issued shares back to control the circulation of the shares available in the market. There are several purposes that lead to Token burning, one of the main purposes is that the coins are burnt or destroyed so that they could not be used in the future.

Some examples of different cryptocurrencies that do tokens burning

There are some other cryptocurrencies as well that reduce the number of coins in circulation. Like Ripple, one of the famous virtual currencies in the market also reduced the circulation of coins but through a different method. The number of transactions allowed was reduced in the network which led to reduced XPR supply.

In order to increase the coin’s worth, “Stellar” another well-known cryptocurrency burnt coins worth almost 55 Million. The reduction in supply was not a small process as it washed out almost 50% of XLM supply. Few other stable coins were also found involved in token burning such as GUSC, USDC and, USDT.

The benefits of token burning

The token burning by digital currency companies is becoming an effective and profitable method of increasing digital token worth by reducing the number of coins in circulation. It is simple demand and supply rule, when demand is constant and there is a reduction in supply, the price shift upwards. This technique is suitable for those crypto companies that are looking forward to playing with the supply while keeping other factors under control.

There is a different angle as well to understand the benefit of token burning. The token burn could be considered an airdrop as it increases the value of coins held by the crypto holders. For example, Company A conducted a burn, as a result, the value of the coin appreciated by 10% due to falling in supply. This means that now the coins held by the individuals are increased in value, that’s why the crypto community is attracted towards those projects who announce the periodic token burn.

When a company decides to reduce the supply of coins by burning, there are two options, the crypto company purchases existing coins from the market or takes existing coins out of circulation. Such a token could be an unallocated token. Incentives for coin holders or traders are not the only reason behind token burning, some cryptocurrencies like Ripple conducted token burn to make transactions more secure.

Conclusion

The fact is that in a decentralized crypto market with no boundaries and control, token burning could be beneficial for the traders and companies, but this could also manipulate the market and hit the trader with a hard time. There are only a few cryptocurrencies that have practiced the method of token burning, but in the future, this trend might catch the mainstream crypto market.