$484 million: this is the amount represented by the 2 million BNB recently removed from the BNB Chain blockchain. At the origin of this operation, the quarterly burn of BNB during which Binance burns a quantity of BNB, defined by a precise formula, in order to make its cryptocurrency deflationary. But is this economic system really effective?
New BNB Quarterly Burn
Since the launch of its platform and its token in 2017, the Binance exchange regularly deletes its BNB in circulation. During the 24th quarterly burn, nearly 2 million tokens were burned, the equivalent of $484 million.
This operation is the third of this type to see the light of day in 2023the two previous ones having been carried out respectively in January and April of this year:
History of the different BNB burns between July 2020 and April 2023
To estimate in advance the number of BNB that will be removed from the BNB Chain during the next burn, here is the formula issued by Binance :
- multiply by 1,000 the number of blocks produced on the BNB Chain over a quarter;
- add the price of a BNB in dollars by a constant value, currently located at 1,000 (the latter may be changed by governance);
- divide everything to get the number of BNB to burn in a quarter.
To note that Binance quarterly burn is made up of two different components : the “Real Burn”, referring directly to the BNB burned using the formula, and the Pioneer Burn Program. The latter makes it possible to financially compensate users who have lost their funds by mistake using the BNB Chain.
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The Relative Efficiency of BNB Burning
Binance seeks to convince investors by taking the bet of a deflationary cryptocurrency. According to the exchange, a steady reduction in the number of tokens in circulation can lead to an increase in the price of BNB:
” By making the currency more scarce, unit burn aims to create a deflationary effect and potentially increases the valuation of the crypto to the benefit of its holders. For BNB, the goal of burns is to gradually reduce its total supply until it is below 100 million BNB. »
Originally, 200 million BNB tokens were issued by Binance and split between the exchange and its various investors. After 6 years, there are only 153 million BNB left in circulation on the network. At the current rate, more than 7 years will be needed to burn the second half of the tokens affected by the burn mechanism.
About the real effectiveness of this deflationary measure, it is difficult to say how much it influences the price of BNB in the long term. Moreover, note that inflationary cryptocurrencies perform just as well as their deflationary counterparts, like Bitcoin (BTC) and formerly Ether (ETH).
In reality, only hyperinflation is able to devalue a cryptocurrency. Moreover, this phenomenon is not unique to the world of Web3 : When some central banks print too much new liquidity, fiat currencies lose value.
Similarly, some cryptocurrencies rely on multiple burns to encourage investors to inject capitalsuch as the same Shiba Inu corner.
Also, deflationary tokenomics can drive the price of a cryptocurrency higher only if the latter holds, upstream, solid fundamentalsinvolving real use cases meeting specific needs.
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Source: Binance
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Always enthusiastic about new technologies, I gradually moved closer to Web3-related activities during the year 2021. Over time, I wanted to add my stone to the building. It was then that I became an editor, with the aim of explaining cryptocurrency-related topics to as many people as possible.
Timothy Bourbotte
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