CEFIMARKET

Binance announces new "BNB Auto-Burn" token burning mechanism to replace quarterly burns, no longer based on trading volume calculations.

share
Binance announces new "BNB Auto-Burn" token burning mechanism to replace quarterly burns, no longer based on trading volume calculations.

Binance has announced that it will replace the quarterly coin burn mechanism of the past few years with "BNB Auto-Burn." In the future, when the total circulation of BNB drops below 100 million, coins will no longer be burned. This also means that the amount of coin burns will no longer be directly tied to Binance's trading volume and will show a negative correlation with the coin price.

BNB Coin Burn Old System

Binance originally planned to burn BNB tokens based on 20% of profits quarterly, but later switched to a "based on trading volume" model for BNB until 50% of the total supply, approximately 100 million BNB, is removed from circulation.

BNB Auto-Burn

According to a announcement by Binance, the new auto-burn formula is as follows:

  • B: Burn amount
  • N: Total BSC blocks per quarter
  • P: Average USD price of BNB. Every 10,000 blocks, a sample is taken based on the "median" from the oracle, approximately every 8.3 hours.
  • K: Constant anchor price. Initially set at 1,000, can be modified through BSC BEP proposals and community voting.

If calculated over a three-month period of about 90 days, with blocks produced in BSC every hour at 1,200, and 3,600 seconds per hour, divided by 3, the result is:

N Total BSC blocks per quarter = 3,600 ÷ 3 × 24 × 90 = 2,592,000

If the past implementation has been "BNB Auto-Burn" and the future price of BNB continues to rise above $1,400, the expected burn amount curve is as follows.

Dual Burn Mechanism

The announcement states that the new system's data is all on-chain, making it more transparent and verifiable. The burn amount no longer depends on Binance's income for the quarter but is based on the BNB price. The new system resembles a dynamic burn mechanism based on the supply and demand of the token price.

In addition, BSC also introduced a burn mechanism called "BEP-95" at the end of November, similar to Ethereum's EIP-1559.

The BEP-95 proposal aims to introduce a real-time token burn mechanism on BSC to enhance the burn rate of BNB and increase its value. The proposal has two main points:

  • Gas Fees collected by node validators will be burned at a fixed rate in every block.
  • The change in burn rate will be decided by BSC validators who can vote by staking BNB through proposal voting.

If the proposal is approved, node validators and delegators will receive reduced BNB rewards, but the actual value may increase with the rise in BNB price. The initial burn rate is set at 10%.

BurnBNB data shows that since the launch of BEP-95, approximately 17,800 BNB, around $10,111,850, has been burned, and BEP-95 will continue to operate even when the circulating supply is below 100 million after auto-burn stops.

Binance CEO Changpeng Zhao mentioned on Twitter in a tweet that the switch to auto-burn instead of quarterly burn brings BNB closer to a DAO organizational structure and moves away from being just an exchange platform token.

Binance is expected to release the 2021 Q4 burn announcement in mid-January next year, and it is uncertain whether the new system will be used for the burn.