Coin burning is a mechanism used to remove coins from circulation, reducing the total supply permanently. Many cryptocurrency projects perform periodic coin burns to create a deflationary effect.
BNB adopts two coin-burning mechanisms, which will reduce its total supply by 50% in the long term. The first mechanism consists of burning a portion of the BNB spent as gas fees on the BNB Chain (introduced in the BEP-95). The second consists of quarterly BNB burning events.
Previously, the quarterly BNB burns were based on the BNB trading volume on the Binance exchange. But in December 2021, Binance announced that the Quarterly Burn would be replaced by the new BNB Auto-Burn.
The BNB Auto-Burn mechanism will automatically adjust the amount of BNB to be burned based on the BNB price and the number of blocks generated on the BNB Chain during the quarter. This offers greater transparency and predictability to the BNB community. Users who have lost tokens in certain cases can count these towards the burn and then be reimbursed under the BNB Pioneer Program.
The BEP-95 burning mechanism
In early 2021, Binance CEO CZ shared his plan to accelerate BNB burns as the overall burning rate was slower than he originally anticipated. To speed up the process, Binance introduced a new burning mechanism through the BEP-95 in November 2021.
BEP-95 is a Binance Evolution Proposal that adds a real-time burning mechanism to the BNB Chain. The smart contract automatically burns a portion of the gas fees collected by validators from each block. As more people use the BNB Chain, more BNB will be burned, effectively accelerating the burning process.
As of July 2022, the BNB Chain burns approximately 285 BNB every day, and the progress can be tracked on Twitter. As BEP-95 is solely dependent on the BNB Chain network, it will continue to burn BNB even after the 100 million burn target has been reached.
As mentioned, BNB Auto-Burn will automatically adjust the burn amount based on BNB’s price and supply-demand dynamics. This means that if the BNB price drops, the amount of BNB burned will increase.
BNB Auto-Burn is both objective and verifiable. It aims to provide greater transaction transparency and predictability. Unlike the Quarterly Burn, BNB Auto-Burn is independent of the BNB trading volume on the Binance exchange. Instead, it uses on-chain information to calculate the amount to burn.
Once the total circulating supply of BNB falls below 100 million, the BNB Auto-Burn will stop. However, the BEP-95 mechanism will continue to burn BNB. BNB Auto-Burn follows a formula to burn BNB automatically, which is based on the on-chain data of total blocks generated and the average price of BNB:
B represents the BNB to be burned. N is the total number of BSC blocks produced during the quarter. P is the average BNB price, and K is a constant price anchor (initially set at 1000).
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