While burning a financial asset might sound extreme, burning crypto tokens is a fairly common.
Token burning is a strategy followed by cryptocurrency projects to influence the price of a token, or coin, in the market. This is done by permanently removing some tokens from circulation. While the major cryptos (Bitcoin and Ethereum) don’t have token burning programs, many strong Altcoins use it.
For instance, Binance has a target of burning 100 million BNB tokens, while there are similar practices for both USDT Tokens (issued by Tether) and XRP coins (issued by Ripple). The most popular token for burn mechanisms is SAFEMOON Tokens (issued by SafeMoon) which inspired the creation of the contract FJUST contract.
Does burning work?
The best example is the Binance Quarterly Burns. The company has burnt around $60 million in BNB tokens since the inception of the Quarterly burns.
Stellar, another cryptocurrency company, proceeded with a $55M burn to increase the coin’s value. This burn effectively reduced XLM supply by over 50%. The price effect on XLM was quickly noticeable in the short term, moving from $0.069 to $0.088 in a day (around 25% from November 5th, 2020 to November 6th, 2020).
Even stablecoins like USDT, GUSC, USDC and HUSD (1:1 ratio to the $USD) have conducted burns of over $2.8 billion. This provides transparency of the reserves once funds are added or retired. When there is a deposit in reserves, tokens are minted. The burning happens when the coins minted into the reserve are withdrawn, regulating the circulating supply and keeping the balance stable.
What are the benefits of token burning?
There are several benefits of token burns. Trust and confidence in the project is a key element. This is where, for example, during the ICO stage, it is common to find the burning process is done once the token or coin is finally launched to provide the new investors with the reliability that their fund will not be affected by an over circulation.
Additionally, by reducing the circulating supply of a portion of the circulation of a cryptocurrency like the XRP example we discussed above, the number of transactions gets equally reduced. In a nutshell, a reduction in volume lowers the chances of spam attack which leaves enough bandwidth for health transaction count for the community.
How token burning works at Fallen Justice
- FJUST’s Protect and Burn mechanism While many tokens might have an initial burn following launch, many make coin burns a part of their DNA. The protect and burn mechanism is one of the unique utilities of the FJUST token.
The initial liquidity is sent to a locked account preventing Fallen Justice from removing the liquidity and ensuring the growth of the fund for the community participants. Fallen Justice adds 6% of the profits made on fees in the to a reserve to protect the price of the FJUST token, marketing and growth as an organization.
The protect and burn utility has been designed to connect with the community’s sense of growth. According to Fallen Justice’s Founder Joshua Pierce:
"The amount of FJUST token burnt is calculated in real-time based on revenues generated by the organization as well as the level of community contributions to the liquidity pool. We will share objectives with our community, such as Operation 261 milestones, voting calendars, and new participants for the next 9-month program, allowing each donor to connect and personalize their donation with the actual community participants their helping support.”
Joshua Pierce, Fallen Justice Program founder.