Binance announces new quarterly burning mechanism BNB auto-burn
Binance has announced the adoption of a new quarterly Binance Coin (BNB) burning mechanism, which is no longer dependent on the exchange’s revenue.
— Binance (@binance) December 22, 2021
A new protocol for quarterly BNB burns
As of mid-December, the Binance ecosystem has two parallel BNB burning mechanisms, namely:
- Burn BNB quarterly
This is the BNB burn mechanism from the Binance whitepaper. Initially, the exchange will use 20% of quarterly profits to buy back BNB from the market and burn them. However, Binance later changed it to burn BNB owned by the Binance team based on trading volume, not buying back BNB from the market. Even so, both pledged to burn BNB so that the total supply of this coin is reduced by 50% to only 100 million BNB. The last quarterly BNB burn was in mid-October, burning 1.3 million BNB worth $639 million.
- BEP-95 mechanism
This is a new Binance Smart Chain (BSC) fee-based BNB burning mechanism that has been in place since November 30, 2021, with a burn limit of 10% of the gas fee of a BSC transaction block. According to statistics, BSC is burning up to 860 BNB/day thanks to BEP-95. BEP-95 will continue to burn tokens even after passing the 100 million BNB threshold of quarterly BNB burns.
The new mechanism, called BNB Auto-Burn, will be adopted by Binance to replace quarterly BNB burns with immediate effect. The reason that Binance gives to explain the application of the new burning mechanism is to increase transparency and predictability for the user community. In addition, the burn value will now no longer depend on revenue/trading volume on the Binance exchange.
The new quarterly BNB burn formula will be:
- B: The amount of BNB to burn
- N: The total number of blocks produced on BSC during the calendar quarter
- P: An average price of BNB against the US dollar
- K: A constant value as a price anchor, initially set at 1,000
BNB Auto-Burn will be halted when the total circulation of BNB drops below 100 million.
As such, it can be seen that the quarterly value of BNB burned from now on will depend more on the number of blocks generated by Binance Smart Chain in the quarter, as well as the market price of BNB. According to Binance, doing so will help better reflect the supply-demand relationship for BNB, easily calculate based on public blockchain data, as well as show that BNB is a token of an ecosystem and is no longer tied to the Binance exchange.
Binance then offers a burn forecast under the new BNB Auto-Burn mechanism. It is easy to see because the amount of burning is inversely proportional to the price, so if the price of BNB falls, the number of burns will increase to strengthen the deflationary effect and pull up the price of BNB; and when the price of BNB is high, the number of coins burned will be restrained.
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