What is BNB Auto-Burn? Binance BNB Token Burning Mechanism

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2022-12-07 04:17:47

What is BNB Auto-Burn?

BNB Auto-Burn is a mechanism to burn BNB tokens based on the supply and demand dynamics of this token. Besides BNB Auto-Burn, Binance also has many other mechanisms to reduce the supply of BNB such as the BEP-95 mechanism and the BNB Pioneer Burn program.

BNB is a utility token issued by the Binance exchange through an ICO in July 2017 and used in the BNB Chain ecosystem. Up to now, BNB is not only an exchange token (exchange token), but also plays a very important role in the DeFi market, especially after Binance launched BNB Chain for MetaFi development in February 2022. .

BNB is used to pay gas fees on the Binance exchange. In addition, BNB holders can also use them to stake or participate in Binance Launchpool and Binance Launchpad to earn more attractive returns with low risk.

Why burn BNB?

Usually, most tokens have a certain supply, which makes it difficult for their price to grow. In order to reduce the supply, create a deflationary effect to help BNB grow sustainably in the long-term, and at the same time give investors more confidence to continue holding the exchange’s tokens, Binance has conducted burn tokens BNB. This activity also helps to increase trading volume, increase liquidity, stabilize BNB price and avoid sharp fluctuations.

BNB burning is usually done by depositing the desired amount of BNB to a non-withdrawable wallet address, also known as a Dead Address. Wallets used to burn tokens on the BNB Chain network usually end with “dEaD.” These wallets will be blockchain explorer classified into the hashtag “Burn”. As a result, the amount of BNB in ​​circulation will decrease.

Binance burns BNB with the goal of reducing the supply below 50% in the long term with 2 main mechanisms: BNB Auto-Burn and BEP95.

BNB . Burning Mechanism

BNB Auto-Burn Mechanism

Previously, the BNB burn event was done quarterly (every 3 months), based on BNB . trading volume on the Binance exchange. This makes it difficult for the community to accurately predict the amount of BNB burned each quarter. Therefore, as of December 2021, Binance has changed the quarterly BNB burning mechanism to the BNB Auto-Burn mechanism. This new mechanism works without the BNB transaction volume, helping to bring transparency and make the community more predictive.

Specifically, this mechanism automatically adjusts the amount of BNB burned based on the BNB price and the number of blocks generated during the quarter on the BNB Chain, or BNB’s supply-demand dynamics. Simply put, the lower the price of BNB, the more BNB is burned. When the total circulating supply of BNB falls below 100 million BNB, this automatic BNB burning will stop. The percentage of BNB burned according to the BNB Auto-Burn mechanism is calculated as follows:

B = (N x 1000) / (P+K)

In there:

  • B: Amount of BNB burned
  • N: Total number of blocks produced during the quarter on BNB Chain
  • P: Average BNB price
  • K: Fixed price (initial set at 1,000)

With an initial supply of 200 million BNB, Binance aims to burn BNB until the supply is 50%, which is 100 million BNB. As of the beginning of December 2022, BNB has undergone 21 burnings, with each burn, BNB typically accounts for 0.41% – 1.74% of the total supply. In there:

  • Total BNB Burned: 40,748,599 BNB
  • Estimated value of BNB burned: 12,061,585,304 USD (according to BNB price on 1/12/2022)

BEP-95 . Mechanism

In addition, Binance also uses the BEP-95 mechanism to burn a portion of BNB to be used as gas fees on the BNB Chain.

At the beginning of 2021, CZ shared that the BNB burn was happening slower than he expected. Therefore, in November 2021, Binance introduced a new BNB burning mechanism through BEP-95. Specifically, the amount of BNB used by users as gas fees will be removed from the supply in real time on the BNB Chain. In other words, the more people use the BNB Chain, the more BNB is burned. BEP-95 is solely dependent on the BNB Chain network so BNB will continue to be burned even if Binance achieves its goal of burning 100 million BNB.

As of early December 2022, 138,100 BNB gas fees have been burned on the BNB Chain, which is worth approximately $52,859,300.

BNB Pioneer Burn Program

BNB Pioneer Burn is a program developed by Binance in September 2020. Users who suffered damage by mistake while trading on BNB Chain will be refunded the exact amount of lost tokens. This principle partially affects Binance’s quarterly BNB burn mechanism.

Supported user cases include:

  • Users who lost tokens such as BNB, wBNB, BTCB, etc. are supported through Binance’s Token Canal project.
  • User sent tokens to the wrong BEP20 wallet address confirmed on bscscan.com.
  • Users mistakenly lose more than $1,000 and less than the amount of BNB burned in the upcoming quarter.

To get their money back, users need to contact Binance support and they will examine each case and return the damaged user assets. The amount of BNB distributed through the BNB Pioneer Burn program will be added to the next quarterly BNB burn.

Compare BNB prices across burnings

On the first burn, BNB was priced at $1.52; on the 15th burn, BNB was priced at $541.25 – a 356x increase from the first burn. As of now, a total of 40,748,599 BNB has been burned, equivalent to 4,624,911,846 USD.

20.33% of BNB has been removed from the circulating supply and to achieve the goal, Binance needs to burn 29.67% more BNB. For details see the table below.

Check BNB . Burn History

Users can check BNB burning progress on:

summary

Since its launch in 2017, BNB has experienced rapid growth and applications in many different fields. Besides, the BNB Chain ecosystem also has a significant expansion. BNB burning mechanism makes BNB deflationary and makes Binance transparent to the community and brings many benefits to BNB holders.

The more cases BNB is used in and the more often it is burned, the more likely its price is to go up. Especially with the two platforms Binance Launchpool and Binance Launchpad, the number of BNB holders will increase and the price of BNB will increase.

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