Binance Coin Burn
On Oct 17, 2018, during their fifth quarterly BNB coin burn, Binance removed $17 million worth of BNB tokens from circulation. Nonetheless, BNB prices are stable and up three percent in the last week.
Binance is now the world’s largest crypto trading exchange by trading volume. Ironically, it is of Chinese bases and despite the high demand of cryptocurrencies in the second largest economy in the world, the country’s regulator is firm against digital asset and similar crowdfunding activities better known as ICOs. As an exchange with headquarters in Malta and a platform in Uganda, their motives are clear: drive the mass adoption of cryptocurrencies which in turn increases the demand of its native coin, the Binance coin (BNB).
The coin is by design a utility in the Binance trading platform and users who decide to pay trading fees using Binance coin are set to receive discounts. Discounts are scheduled and since Binance is two years old, users enjoy a 25 percent discount on trading fees, a figure which is automatically deducted from the Binance wallet. Discounts would be halved each year and by the end of the fifth year, these discounts will cease to exist as laid out in the Binance coin white paper.
“Every quarter, we will use 20% of our profits to buy back BNB and destroy them, until we buy 50% of all the BNB (100MM) back…We eventually will destroy 100MM BNB, leaving 100MM BNB remaining.”
This is also by design because as discounts decrease, the demand for BNB should by theory increase because of the company’s intention to suck out BNB supply from the market. Through coin “burns”—the same tactic employed by Tron as they were transiting from an ERC-20 token to their own network—Binance will take out 100 million BNB tokens, reducing supply and increasing demand and therefore the price of BNB.
Coin burns will be subject to the exchange’s quarterly profitability and every quarter they print a profit, 20 percent will be channeled towards purchasing BNB coins from coin holders. But because of current downturns, BNB owners prefer hodling the coin rather than trading with it and that explains the reason why the exchanged burnt 1,643,986 BNB in their fifth quarter burn—roughly $17 million, which is small compared to previous burns. By burning tokens, Binance simply sent these tokens to an Ether address which cannot be withdrawn effectively removing these coins from circulation increasing scarcity as a result.
Coin market trackers indicate that there is a total supply of 191 million BNB and from it, 117 million are in circulation. At this rate and new-found demand as users try to cut down costs due to a flat market, the coin is now the twelfth most capitalized in the world with a market cap of $1.426 billion with an average daily transaction volume of $25.65 million at the time of press. Apart from Binance, BNB is supported in 20 different exchanges.