What Is a Coin Burn?
Note: The first section of this article explains the previous burn function of BNB while it was on the Ethereum network. BNB is now on Binance Chain, and the burn function behaves differently. However, the discussion still applies to all current ERC-20 tokens that support the burn function.
Coin burning is the process of permanently removing coins from circulation, reducing the total supply. In order to explain how this is achieved and how it works, we will be using BNB (the old BNB ERC-20) as an example. The previous contract for BNB while it was on the Ethereum network can be found here.
When the BNB was still part of the Ethereum network, Binance performed periodic Coin Burn events through the use of a smart contract function known as burn function. The BNB burning events are scheduled to take place every quarter until 100,000,000 BNB are finally destroyed, which represents 50% of the total BNB ever issued (200,000,000 BNB). However,
The amount of BNB coins to be burned is based on the number of trades performed on the exchange within a 3-months period. So after each quarter, Binance burns BNB according to the overall trading volume.
However, it seems that a considerable amount of people still fail to understand how Coin Burns are executed. The present article aims to provide relevant information in regards to the burn function and the quarterly BNB Coin Burn events.
How does it work?
Basically speaking, a token burn event happens in the following order:
- A coin holder will call the burn function, stating that they want to burn a nominated amount of coins.
- The contract will then verify that the person has the coins in their wallet and that the number of coins stated is valid. Only positive numbers work.
- If the person does not have enough coins, or if the stated number is invalid (e.g., 0 or -5), the burn function will not be executed.
- If they do have enough, then the coins will be subtracted from that wallet. The total supply of that coin will then be updated, and the coins will be burned.
If you execute the burn function to burn your coins, they will be destroyed forever. It is impossible to recover coins after they are burned.
In other words, the BNB contract has a function known as burn function, which is available to anyone, at any time. By calling this function one can permanently remove a nominated amount of coins from the circulating supply. All coin burns are recorded as a transaction on the blockchain, meaning that they are 100% transparent and anyone is able to verify that the coins have been destroyed.
As soon as a quarterly Coin Burn takes place, Binance makes an official announcement that specifies the amount of BNB coins that were burned (based on the trading volume for that quarter). You can verify all BNB ERC-20 Coin Burn transactions on an Ethereum blockchain explorer, such as Etherscan. The burning transactions are public, irreversible and permanently recorded on the blockchain.
On Etherscan, you can see the details about a burning transaction on the Input Data box.
If you click Decode Input Data, you can check the amount of BNB that was burned. The number includes the 18 decimals, so in this example 1,623,818 BNB were burned.
The current Binance Burn function
Since the launch of Binance Chain, the BNB ERC-20 tokens were gradually swapped by the native BNBs (BNB BEP-2). This means that the Coin Burn events now take place on the Binance Chain and not on the Ethereum network.
It is worth noting that all BNB ERC-20 coin burns were “replicated” on the Binance Chain, to ensure that the total supply is the same. In other words, the total 11,654,397 BNB ERC-20 tokens that were burned on the Ethereum network, were also burned on the Binance Chain, right after the mainnet launch. You can check this specific burning transaction on the Binance Chain Explorer. Also, the total supply of BNB is publicly available for anyone to see.
The current coin burn mechanism doesn’t rely on a smart contract anymore but on a specific command executed on the Binance Chain. You can find more details on the Binance Chain Docs page.
As of October 2019, Binance completed 9 BNB Coin Burn events. In total, 14,525,153 BNB coins were burned, reducing 7.26% of the Total Supply (now at 185,474,825).
| Coin Burn | BNB Burned | BNB Price | Approx. USD Value | % of Total Supply |
|---|---|---|---|---|
$1.52 | $1,500,000 | 0.49% | ||
$21.96 | $40,000,000 | 0.91% | ||
$13.52 | $30,000,000 | 1.11% | ||
$12.93 | $32,700,000 | 1.26% | ||
$10.34 | $17,000,000 | 0.82% | ||
$5.83 | $9,400,000 | 0.81% | ||
| #7 (Apr 2019) | 829,888 | $18.79 | $15,600,000 | 0.41% |
| 808,888 | $29.47 | $23,800,000 | 0.43% | |
| #9 (Oct 2019) | 2,061,888 | $17.79 | $36,700,000 | 1.10% |
| TOTAL | 14,525,153 | - | $170,000,000 | 7.26% |
Binance Quarterly Coin Burns.