It is common knowledge that altcoin projects perform periodic burns as a deflation mechanism to reduce the total supply of coins and raise their prices. Binance, the world’s largest cryptocurrency exchange by trading volume, announced that the twentieth BNB burn will take place today with the automatic burning mechanism of BNB coin. Here are the details…
It’s time to burn for Binance’s altcoin project
Control of the supply of BNB, the coin that powers the BNB and BSC ecosystems, was initially done through quarterly BNB burns. The quarterly BNB burn was based on the coin’s trading volume on the Binance exchange. However, with the introduction of BEP-95 in November 2021, Binance announced that the new BNB automatic burning mechanism will help to burn BNB tokens faster. With this mechanism, some of the BNB coins used to pay for transactions on the Binance Smart Chain are destroyed. Binance CEO confirmed the latest burn via his tweet below:
Since the implementation of the BEP-95 burn mechanism, $22,932,378.62 worth of BNB coins have been destroyed. With the cryptocurrency market going into a bearish trend since the beginning of the year, the price of BNB coin has yet to see any positive effects from the BEP-95 burn. At the beginning of the year, the coin marked its place with an index price of $512. Currently trading at the February 2021 level, the price of BNB coin has dropped 56 percent so far this year. At the time of writing, the coin was trading at $224.93. As expected, its market cap has dropped from $85.35 billion in January to $36.70 billion so far.
What is the automatic burning mechanism in BNB?
So, what is BNB’s automatic burning mechanism? BNB uses an automatic burning system to reduce its total supply to 100,000,000 BNB. The automatic burning mechanism adjusts the amount of BNB to be burned based on the price of the BNB and the number of blocks created on the BNB Chain (formerly BSC) during the quarter. Thus, it offers transparency. According to Binance, the automatic burn mechanism is designed to maximize the value of the BNB token and provide a sustainable and secure long-term growth plan for the BNB ecosystem.
As we reported on Kriptokoin.com, Binance used to burn BNB on a quarterly basis based on the BNB trading volume on their exchange. However, in December 2021 quarterly burns were replaced by automatic BNB burns. Automatic incineration is still done quarterly. But they no longer rely solely on trading volume on Binance. The BNB auto-burning mechanism is automated to adjust the amount of BNB that will need to be burned based on two factors. These are the BNB price and the number of blocks created each quarter. From a technical standpoint, BNB auto-burning uses ten chain information from the BNB Chain to calculate how much BNB needs to be burned. This is how the mechanism “adjusts” the amount of combustion.
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