Binance Announces $32 Million BNB ‘Coinburn’, What that Means for BNB Holders
Binance CEO Changpeng Zhao (CZ) has released a ‘Recap’ of the popular exchange’s quarterly ‘coinburn’. For this quarter’s burn, Binance will be rebuying and destroying 2.5 million of their native BNB tokens, worth approximately $32 million. The exchange intends to keep burning tokens until it buys back half of all the tokens in existence. According to the report, removing this much BNB off the market will in effect increase the value of the remaining coins.
How do Burns Work?
The typical method of burning involves a company using a portion of its profits—20% in this case—to buy coins from customers. After that, coins are sent to an address that cannot be withdrawn from and from which nobody can spend. This allows people to view the blockchain and see that the coins have not been spent, thereby making the burn a transparent process.
Burns are functionally equivalent to a redistribution of tokens. Binance’s CEO Changpeng Zhao explains:
“I … learned a shocking amount of people still don’t understand the concept of “burn”. Simply speaking, if someone destroys 10% of a currency (burn), that achieves the exact financial effect as spreading that 10% proportionally to the other 90% holders (usually called a dividend distribution)”
A burn is cheaper than a dividend distribution because it usually costs less in transaction fees, taxes, and work. For these reasons, token burning is common in cryptocurrency, and Binance is far from the only exchange to carry out burns. Tron burned over 49 billion ERC tokens last month, and Kucoin is set to carry out its own burn this month. ICOs will often burn unsold tokens as well.
People often object to burns, perhaps because of an unfamiliarity with the concept, and perhaps because the result of an action they didn’t take is reflected in their account. Zhao observed a related phenomenon in today’s report: people often aren’t concerned when more of a currency is printed, even though that devalues the currency overall. But even if this is true, some analysts note that past burns have not had a significant effect on the market:
“Right after the second BNB burn, for instance, the price went up for the first couple of days, before falling over 60 percent.”
Binance’s report for this quarter also notes that although the overall market has been “relatively flat, with a slight drop,” Binance has achieved “decent earnings.” It also notes that ICOs in general have done better than ever—raising $14 billion so far this year, or four times what ICOs brought in during 2017.
Subscribe for the latest cryptocurrency news
More Crypto News
Bitcoin Cash (BCH), the controversial project forked from the original Bitcoin client, is now the…
As you probably know, the Bitcoin network is maintained by a decentralized web of Bitcoin…
Although Bitcoin has been around since 2009, it wasn’t until the events of late 2017…