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.
What is a coin burn?
A coin burn refers to the process of permanently removing cryptocurrencies from circulation to reduce the total supply of the coin. In other words, coins are destroyed and can no longer be used in trading or anything else.
By making the coin scarcer, coin burning aims to create a deflationary effect and potentially increases the crypto’s valuation to benefit its holders. For BNB, the goal of coin-burning events is to gradually reduce its total supply until it’s under 100 million BNB.
While there are multiple ways to burn cryptocurrency, some projects implement a specific burning feature as part of their protocol. For example, BNB included a smart contract burning function when it was first launched.
With the rise of Decentralized Finance (DeFi) protocols, coin burning has become more common in the blockchain space. Ethereum (ETH) started burning the ETH base fee of all blockchain transactions after implementing the London hard fork upgrade in 2021.
To burn coins, a certain amount of crypto is sent to a smart contract or wallet address that cannot be used for making transactions and has no private keys. This means that once the coins reach the address, they will be lost forever and thus removed from the available supply.
For more details on how a coin burn works, check out What Is a Coin Burn?.
How is BNB burned?
BNB is the utility token that powers the BNB ecosystem. The initial total supply was 200,000,000 BNB, but it is gradually decreasing through coin burns. The burning events will happen until 50% of the total supply is destroyed, reducing it to under 100,000,000 BNB.
There are two methods to burn BNB. The first consists of quarterly BNB burning events. The second was introduced in the BEP-95 and involves burning a portion of the BNB spent as gas fees on the BNB Chain.
Previously, the quarterly BNB burns were based on the BNB trading volume on the Binance exchange. But in December 2021, Binance announced the new BNB Auto-Burn. The BNB Auto-Burn mechanism automatically adjusts the amount of BNB to be burned based on the BNB price and the number of blocks generated on the BNB Chain during each quarter. This offers greater transparency and predictability to the BNB community.
BNB Quarterly Burn
As of July 2022, Binance completed 20 BNB coin burn events. In total, 38,683,447.66 BNB coins were burned, reducing the initial 200M supply by 19.34% (the total supply is now at 161,316,552.34 BNB).
BNB Destruction History (quarterly coin burn).
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.
What is BNB Auto-Burn?
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). For more details on how this formula works, you can take a look at this blog article.
What is the BNB Pioneer Burn Program?
In 2020, Binance introduced the BNB Pioneer Burn Program to help users who have lost their BNB funds by accident. Users who meet certain criteria can put in a claim for their lost BNB, and Binance will reimburse them from the amount that is to be auto-burned. The criteria include:
1. Tokens lost that were wrapped (e.g., WBNB) or pegged tokens (e.g., BTCB) and supported via the Binance “Token Canal” Project.
2. Tokens transferred to verified BEP20 contract addresses verified on bscscan.com. These losses can then be publicly verified as moving the asset permanently out of circulation.
3. Tokens lost by an honest mistake worth more than 1,000 USD, but less than the projected BNB Auto-Burn amount in the upcoming quarter.
Tokens that would be burned in the quarterly Auto-Burn are then given to eligible applicants. The lost tokens are then counted towards that quarter’s burn.
How to check the BNB Auto-Burn history?
Since its launch in 2017, BNB has evolved in many ways as a utility token. The blockchain space is growing fast, and so is the BNB ecosystem. The new BNB Auto-Burn will further enhance the BNB burning mechanisms, improving its deflationary properties and bringing more transparency to the community.