Is the BNB Coin Burn Good For Investors?
Investors have long sought to understand why Binance burns coins, when it does the burn, and whether they benefit from the burn program.
Mar. 8 2022, Published 7:32 a.m. ET
Binance operates one of the world’s largest cryptocurrency exchanges. It also runs an Ethereum-type blockchain, Binance Smart Chain, which hosts DeFi, NFT, metaverse, and Web3 projects. The Binance Coin (BNB) powers transactions across the Binance network, such as paying exchange fees. Binance has a token burn program for its BNB coin. Why does Binance burn coins? Is the BNB burn good for investors?
Binance was founded by Changpeng Zhao, who developed futures trading software at Bloomberg Tradebook for years. Born in China, Zhao migrated with his parents to Canada, where he studied computer science. Zhao has continued to lead Binance and regularly shares updates about the BNB burn program.
What’s BNB and how does it work?
Multiple operations take place across the Binance network, with people trading cryptocurrencies for fiat money or other cryptocurrencies. Binance charges trading fees on its exchange, and those are paid for with BNB.
On the Binance blockchain, developers launch various projects that investors can access. Those who pay with BNB can get discounts on Binance fees. The coin can also be used to pay for product purchases outside the Binance network.
Why does Binance burn coins?
At BNB's launch, Binance set its maximum supply at 200 million coins. Later, however, it decided it should reduce the supply. Through the burn program, Binance aims bring BNB's supply down to below 100 million coins.
Many other crypto projects have token burn programs. The burn process, which involves permanently removing a portion of a cryptocurrency’s supply from circulation, is similar to corporate stock buyback programs.
Is the BNB burn good for investors?
The BNB burn strives for deflation and aims to grow the value of investors' BNB holdings over time. By sweeping some BNB coins from the market, scarcity is created, boosting the value of the remaining coins.
When does Binance burn coins?
The BNB burn program started in 2017 and takes place on a quarterly basis in the months of January, April, July, and October. In 2021, Binance introduced the auto-burn method, which it says makes the process more transparent.
In the auto-burn process, the amount of BNB to burn is based on the coin’s price and supply and demand. Previously, Binance calculated the amount of BNB to burn based on the revenue generated on its exchange.
To accelerate the burn program, Binance also burns BNB coins paid to it as gas fees on its blockchain, meaning that more BNB coins will be removed from the market as more people use the Binance Smart Chain platform. Whereas the automated quarterly burn will stop once the coin’s supply drops to 100 million, the gas fee burn will continue. Therefore, BNB should become more scarce and valuable over time.
