What Is BNB Auto-Burn?

09/02/2022 By Author

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TL;DR

Coin burning is a mechanism used to remove coins from circulation, reducing the total supply permanently. Many cryptocurrency projects perform periodic coin burns to create a deflationary effect.

BNB adopts two coin-burning mechanisms, which will reduce its total supply by 50% in the long term. The first mechanism consists of burning a portion of the BNB spent as gas fees on the Binance Smart Chain (BSC) (introduced in the BEP-95). The second consists of quarterly BNB burning events.

Previously, the quarterly BNB burns were based on the BNB trading volume on the Binance exchange. But in December 2021, Binance announced that the Quarterly Burn would be replaced by the new BNB Auto-Burn.

The BNB Auto-Burn mechanism will automatically adjust the amount of BNB to be burned based on the BNB price and the number of blocks generated on BSC during the quarter. This offers greater transparency and predictability to the BNB community.

A coin burn refers to the process of permanently removing cryptocurrencies from circulation to reduce the total supply of the coin. In other words, coins are destroyed and can no longer be used in trading or anything else.

By making the coin scarcer, coin burning aims to create a deflationary effect and potentially increases the crypto’s valuation to benefit its holders. For BNB, the goal of coin-burning events is to gradually reduce its total supply until it’s under 100 million BNB.

While there are multiple ways to burn cryptocurrency, some projects implement a specific burning feature as part of their protocol. For example, BNB included a smart contract burning function when it was first launched.

To burn coins, a certain amount of crypto is sent to a smart contract or wallet address that cannot be used for making transactions and has no private keys. This means that once the coins reach the address, they will be lost forever and thus removed from the available supply.

BNB is the utility token that powers the BNB and BSC ecosystems. The initial total supply was 200,000,000 BNB, but it is gradually decreasing through coin burns. The burning events will happen until 50% of the total supply is destroyed, reducing it to under 100,000,000 BNB.

There are two methods to burn BNB. The first consists of quarterly BNB burning events. The second was introduced in the BEP-95 and involves burning a portion of the BNB spent as gas fees on the Binance Smart Chain (BSC).

Previously, the quarterly BNB burns were based on the BNB trading volume on the Binance exchange. But in December 2021, Binance announced the new BNB Auto-Burn. The BNB Auto-Burn mechanism automatically adjusts the amount of BNB to be burned based on the BNB price and the number of blocks generated on BSC during each quarter. This offers greater transparency and predictability to the BNB community.

As of January 2022, there were 17 BNB burn events. A total of 33,199,679 BNB were burned, which represents 16.59% of the total supply.

Coin Burn	BNB Burned	Approx. BNB Price	Approx. USD Value	% of Total Supply
#1 (Oct 2017)	986,000	$1.52	$1,500,000	0.49%
#2 (Jan 2018)	1,821,586	$21.96	$40,000,000	0.91%
#3 (Apr 2018)	2,220,314	$13.52	$30,000,000	1.11%
#4 (Jul 2018)	2,528,767	$12.93	$32,700,000	1.26%
#5 (Oct 2018)	1,643,986	$10.34	$17,000,000	0.82%
	1,623,818	$5.83	$9,400,000	0.81%
#7 (Apr 2019)	829,888	$18.79	$15,600,000	0.41%
#8 (July 2019)	808,888	$29.47	$23,800,000	0.40%
#9 (Oct 2019)	2,061,888	$17.80	$36,700,000	1.03%
#10 (Jan 2020)	2,216,888	$17.50	$38,800,000	1.11%
#11 (April 2020)	3,373,988	$15.55	$52,466,000	1.69%
#12 (July 2020)	3,477,388	$17.40	$60,500,000	1.74%
#13 (Oct 2020)	2,253,888	$30.17	$68,000,000	1.13%
#14 (Jan 2021)	3,619,888	$45.80	$165,791,000	1.81%
#15 (Apr 2021)	1,099,888	$541.25	$595,314,380	0.55%
#16 (Jul 2021)	1,296,728	$303.59	$393,673,653	0.65%
#17 (Oct 2021)	1,335,888	$478.68	$639,462,868	0.66%
TOTAL	33,199,679	–	$2,220,707,902	16.59%

In early 2021, Binance CEO CZ shared his plan to accelerate BNB burns as the overall burning rate was slower than he originally anticipated. To speed up the process, Binance introduced a new burning mechanism through the BEP-95 in November 2021.

BEP-95 is a Binance Evolution Proposal that adds a real-time burning mechanism to Binance Smart Chain (BSC). BSC automatically burns a portion of the gas fees collected by validators from each block. As more people use the Binance Smart Chain, more BNB will be burned, effectively accelerating the burning process.

As of January 2022, BSC burns approximately 860 BNB every day, and the progress can be tracked on Twitter. As BEP-95 is solely dependent on the BSC network, it will continue to burn BNB even after the 100 million burn target has been reached.

As mentioned, BNB Auto-Burn will automatically adjust the burn amount based on BNB’s price and supply-demand dynamics. This means that if the BNB price drops, the amount of BNB burned will increase.

BNB Auto-Burn is both objective and verifiable. It aims to provide greater transaction transparency and predictability. Unlike the Quarterly Burn, BNB Auto-Burn is independent of the BNB trading volume on the Binance exchange. Instead, it uses on-chain information from BSC to calculate the amount to burn.

Once the total circulating supply of BNB falls below 100 million, the BNB Auto-Burn will stop. However, the BEP-95 mechanism will continue to burn BNB. BNB Auto-Burn follows a formula to burn BNB automatically, which is based on the BSC on-chain data of total blocks generated and the average price of BNB:

B represents the BNB to be burned. N is the total number of BSC blocks produced during the quarter. P is the average BNB price, and K is a constant price anchor (initially set at 1000). For more details on how this formula works, you can take a look at this blog article.

Each burn event is publicly accessible on the blockchain and on the Binance website. You can also track the burns on BNBBurn.info, a platform built by the BSC community.

Since its launch in 2017, BNB has evolved in many ways as a utility token. The blockchain space is growing fast, and so is the BNB and BSC ecosystem. The new BNB Auto-Burn will further enhance the BNB burning mechanisms, improving its deflationary properties and bringing more transparency to the community.

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