Binance is again evolving the BNB token burn mechanism and introducing auto-burn. The amount of tokens removed from circulation will be determined by a mathematical formula, bringing more “transparency and predictability” to the community.
Binance evolves NBB burn mechanism
The information was confirmed by Binance in a statement issued on Wednesday 22 December. In line with the interests of the community, Binance has announced a change in the burn procedure for BNB tokens on the Binance Smart Chain (BSC)
Binance introduced a new BNB Auto-Burn protocol to replace their scheduled quarterly burns
This will make BNB more scarce with both BEP95 and Auto-Burn regularly decreasing the supply. https://t.co/FAeS0TE4vn
– Binance Smart Chain (@BinanceChain) December 23, 2021
Currently, there are two mechanisms for burning NBBs. Firstly, since the BEP-95 update of 22 October, a fraction of the fees applied on the BSC network is automatically burnt on each transaction. Thus, about 800 BNBs are removed from circulation every day.
In a second step, every quarter since the launch of the Smart Chain in 2017, Binance manually destroys a certain amount of BNB. The most recent one resulted in the removal of 1,335,888 BNBs. It is precisely this mechanism that will be phased out and replaced by an auto-burn of the tokens.
In concrete terms, the tokens will be burned on the basis of a formula taking into account the total number of blocks generated and the average price of the BNB. A way to be closer to the real health of the Smart Chain. According to Binance, this will bring more “transparency and predictability” to its community.
An aggressive token burning policy
Since the launch of the Binance Smart Chain, the company led by Changpeng Zhao has committed to burning 100 million BNB, half of the initial total offering. It is expected that when the total outstanding supply of BNB falls below 100 million, the auto-burn mechanism will be discontinued. According to the release, Binance expects this would bring the BNB to a price of $1500 per token.
Forecast curve of BNB burn by token price (Source: Binance release)
During the last quarterly burn, more than one million BNB tokens were taken out of circulation, which was a whopping $640 million at the time. Earlier this year, the team also destroyed $393 million worth of NBBs during the 16th quarterly burn event.
With this ambitious move to destroy half of the BNB in circulation, Binance wants to increase the rarity of its token by making it less available. This avoids ‘diluting’ the BNB price by supporting and sustaining its long-term growth.
At the time of writing, BNB is trading for about $532 according to Coingecko data. Incidentally, it still remains the third most capitalised cryptocurrency. Despite being down 23% from its all-time high, the asset has proven to be quite resilient in the face of the drop the market has experienced since May 2021, when it was trading near $690.
