When dealing with cryptocurrency you can often come across with such a definition as token or coin burn. This guide is meant to puzzle out what it is, the reasons for token burn and the ways of doing that as well as to introduce successful examples of successfully implemented token burn strategies in blockchain projects.
What does it mean?
Token burn simply means destruction of a certain number of digital currency units. This process is irreversible and after tokens are burnt nobody can ever use them in future.
What is the idea behind token burn?
On the whole, token burn is a deflationary measure helping to increase the token value and retain the confidence of the token holders. First of all, this strategy allows reducing the total supply and thus increasing the market value of tokens. Usually when a company burns or locks a number of tokens it causes the price to increase due to the law of supply and demand. After part of tokens is burnt their exchange rate grows up due to reallocation of their total value to the decreased amount. Even the news about upcoming token burn can significantly drive up the exchange rate, though it is typical for the most popular cryptocurrencies. Besides, that is the way of maintaining stability and minimizing possibility of fall in exchange.