Binance’s third quarter recap published on LinkedIn begins with a graphic which triumphantly proclaims that approximately 30 million USD was burned in that quarter. Why is this a good thing?
There were no real fires. In actuality 2,220,134 Binance Coin tokens (BNB) were written off from the system. These are the tokens that power the exchange.
Changpeng Zhao, CEO of Binance, explains that 20 percent of the profit made by the exchange is burned every quarter. The amount of BNB burned has been increasing over the last three quarters because Binance has been expanded its customer base. However profit in real terms has declined because the value of BNB/USD has dropped.
BNB is a ERC 20 standard Ethereum token which are used to pay transaction fees on the exchange. Binance encourages customers to use it by offering a discount if BNB is used, as opposed to other coins.
Binance Coin has a market capitalisation of 1.4 billion USD, and a single BNB is now worth around 12 USD. This is testament to the popularity of the exchange; it is currently the most popular in the world, handling approximately 1.5 billion USD in trading daily.
Why burn?
200 million BNB tokens were created initially, and only about half were released into the system via ICO; the management team retains 40 percent of them.
According to the Binance whitepaper, 20 percent of its profits are used to buy back the token and destroy them in every quarter. In the end only 100 million will remain. This is all a way of regulating the value of the coin.
News of the burn caused the price of BNB to drop from approx. 13.5 to 12.5 USD, though it has already started recovering.
(Photo: pixabay)
