Hi and welcome to a new Cryptomatics episode! In this video, we will briefly
explain what token burning means, how it works, and why companies do this. What Is Token Burning? Token burning is the process
through which coins are purposely and permanently removed
from the circulating supply. It is typically performed by the development team
which can also buy back tokens and burn them. It involves parts of the supply
that are already available, such as unallocated tokens or those
that are stored in the team’s Treasury. Some companies burn tokens regularly,
while others do so as a one-off event. For example, if there are any tokens
left after a fundraiser is completed, the company may choose to burn them. How Does Token Burning Work? Tokens are burned in various ways: 1. Sending tokens to a frozen
address, also known as “burn address”. Nobody has the private key for this address. Once the tokens are sent, the transaction cannot
be reversed, and they cannot be withdrawn. An example of a common burn
address is Ethereum 0x0, which contains more than $900
million worth of ERC-20 tokens. 1. Using the burn function that is included
in the smart contract that issued the token. For example, Binance carries
out regular Quarterly Burns and has committed to reaching
100 million burned BNB tokens. Reasons and Use Cases for Coin Burning There are various reasons for token burning: 1. Deflationary purposes Used to influence the price of a coin. If the
supply is reduced and the demand remains the same or increases, the price goes up. However, if the
demand decreases, coin burning may not help much. 2. To maintain the price peg of stablecoins Here coins are burned to keep the price
of an asset at a near-constant level. 3. Correction This enables a project to correct a mistake. For example, Tether created
$5B in USDT by accident. These tokens had to be burned to prevent
the new supply from destabilizing the 1:1 peg with the US dollar. 4. To incentivize token holders As a coin becomes more valuable,
holders are incentivized to keep them. To achieve this, exchanges like Binance, KuCoin,
Huobi, and OKEx(ochex) burn tokens periodically. 5. Effective consensus mechanism The proof-of-burn mechanism is a consensus
algorithm implemented by a blockchain network. It is used for validating
transactions on the blockchain. Conclusion The most well-known benefit of token burning
is an increase in the value of a coin, even only in the short term. From the community’s angle, token burns
can also be seen as a form of an airdrop, since the value of a token
may increase as a result. We hope you enjoyed this video! If you still have questions about token
burning, let us know in the comment section. Also, don’t forget to subscribe to
Cryptomatics for more DeFi content.
Thats a really interesting one! Good for investors to understand token burns
cool... nice and easy! thank you guys i was looking for an explanation :D
I like your videos! gd job!
good explanation. I like your educational videos.
Thank you to the people who made good videos.
thanks for letting us know...
deflationary crypto vs fiat 101
great job explaining it. token burn to decrease the supply therefore increasing its demand and value.
Thanks for the new video. Really great again. Yes, there are many coins with a supply that is extremely high. First of all, coins have to be burned, and very, very many before they even come close to being worth anything. At gate.io's $GT, what happens here is that it increases in value.