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In crypto, burning, or "token burning," involves permanently removing a token from circulation. This is done by sending the tokens to an inaccessible address called a burn address . This action, often perceived as a deflationary strategy, aims to influence supply and demand dynamics and potentially stabilize or increase the value of a digital asset.
In this article, we will explore why and how token burning is used. We will also look at concrete examples, such as those ofEthereum and Beam, to illustrate the real impacts of this practice.
Table of contents
Why burn tokens? The objectives behind burning
Crypto burning serves several strategic purposes, often tailored to the specific needs of a blockchain :
Creating scarcity : By reducing the circulating supply, the remaining tokens become scarcer. If demand remains constant, this scarcity can lead to an increase in their value.
Combating inflation : Some cryptocurrencies, like Ethereum use burning to control inflation. With the introduction of EIP-1559 , a portion of transaction fees is burned. EIP-1559 is an update to the Ethereum that changed how transaction fees are calculated, introducing a "base fee" that is automatically destroyed with each transaction. This mechanism reduces the supply of ETH and slows its growth, which promotes stabilization or an increase in the asset's value in the long term.
Improving investor confidence : During ICOs or IDOs , projects can commit to burning unsold tokens to ensure optimal supply management, thus reassuring investors.
Rewarding existing holders : Reducing the total token supply can be seen as an airdrop . When the supply decreases, the value of the remaining tokens increases proportionally.
How does burning work in crypto?
The burning process relies on the use of technologies specific to blockchains:
Creating a burn address : A burn address is a wallet without a private key , making it impossible to access the tokens sent to it.
- In practice, the address functions like a "digital trash can". Once the tokens are transferred, they become unusable forever.
Transaction execution : Project developers or users themselves send tokens to this address. The operation is transparently recorded on the blockchain, and anyone can verify that the burn has taken place.
Automation of burns : Some projects incorporate automated mechanisms. For example, each transaction on Ethereum since EIP-1559 burns a portion of the fees in the form of ETH.
Scheduled or one-off burn : Projects like Binance periodically burn tokens, while others may perform one-off burns to respond to specific events.
Concrete example: theEthereum burn with EIP-1559
The introduction of EIP-1559 in August 2021 marked a major shift in transaction fee management on the Ethereum . A portion of the transaction fee, known as the base fee , is now automatically burned, reducing the circulating supply of ETH. Since its implementation, millions of ETH have been burned, with a notable peak of 71,718 ETH burned in a single day on May 1, 2022 —a colossal sum in the market at that time.
The graph below shows the daily amount of Ether burned. While some days, such as September 1, 2024, show a minimum of 80 ETH burned , periods of intense network activity, marked by high transaction fees, amplify the burning mechanism.
Impact of the burn on Ethereum :
Reducing inflation : Before EIP-1559, the total ETH supply increased steadily due to mining rewards. With automated burning, a portion of the newly issued ETH is offset, thus stabilizing the overall supply.
Increased scarcity : By regularly removing ETH from circulation, this deflationary mechanism helps to support the long-term value of the asset, especially if demand remains stable.
Example of a burn mechanism: the case of Beam
Beam, a project focused on the decentralized gaming ecosystem, perfectly illustrates the strategic use of token burning to manage the internal economy and encourage participant engagement. Since its launch, Beam has conducted regular token burning operations, some of which have been particularly noteworthy.
A historic burn: November 2, 2022.
On November 2, 2022, Beam carried out its largest token burn to date, destroying a total of 19.83 billion BEAM , equivalent to $137.97 million at the time of the operation. This massive destruction significantly reduced the circulating supply, thus increasing the token's scarcity.
A mechanism aligned with MIP-7:
According to the MIP-7 strategy adopted by the project, 15% of the profits generated by ecosystem investments are used to buy back and burn BEAM tokens. Furthermore, fees collected on the Beam network are also integrated into this process. This model aims to strengthen the token's value while aligning the incentives of participants with Beam's decentralized governance.
Latest example: January 2025.
On January 4, 2025, Beam further reinforced its commitment with a new burn of 88.8 million BEAM tokens , representing a cumulative value of $2.61 million . These tokens came from fees collected on the platform and decisions made by the community. This action once again demonstrated Beam's transparency and commitment to its users.
Impact on the project's economy
The burning of tokens at Beam has multiple impacts:
- Enhanced governance : With fewer tokens in circulation, the remaining holders see their influence increased in DAO (Decentralized Autonomous Organization) decisions.
- Community engagement : Regular burns encourage participants to keep their tokens and actively contribute to the development of the ecosystem.
- Price stabilization : By decreasing the total supply, Beam maintains a balance between demand and the accessibility of the token for new entrants.
This type of approach, combining supply reduction and community incentives, positions Beam as a relevant example of economic management within the crypto universe.
Controversies surrounding token burning
While burnout has many advantages, it is not without criticism or risks:
- Market manipulation : Some projects use burn as a marketing strategy to attract investors, without any real long-term benefit.
- Concentration of power : If the tokens burned are primarily those held by the community, project teams can increase their control over the remaining supply.
Conclusion: Burning, a powerful but double-edged strategy
Cryptocurrency burning is a tool primarily used to maintain scarcity, stabilize inflation, or bolster investor confidence; it plays a key role in managing the token economy. Its effectiveness depends on the transparency and objectives of the project.
For investors and enthusiasts of decentralized finance, understanding the mechanisms behind burn can offer valuable insights to assess the health and long-term strategy of a crypto project.
Further reading on burn : To improve your knowledge about token management, click on the words in bold to learn more about vesting and airdrops .
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Yoann
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
