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How does a token burn work?

What Is Tokens Burning?

Token burning is a process whereby the deveopers of a token remove certain quantity of the tokens from the curculating supply. This process will make the supply of that token limited, which means that it will have direct impact on the price of the token. We will examine how the token burning process works and what the benefts of token burning  are, both for the project owners and for the investors.

How A Tokens Burn Works?

Normally, the team introduces a frozen private address which is called a Burn Address. The tokens which are needed to be burned are sent to this address and they are not recoverable. Those tokens are lost because no one has the private key of that burn wallet address. Nobody can use that wallet to spend those tokens, so those tokens stored in the burned address are useless and they get deducted from the circulating supply.

What Are The Benefits Of Token Burning

There are number of reason why the project does the token burnng prcocess.

1- Increase In The Value Of The Coin / Token

When you burn the token, the supply gets reduced and therefore the price also increases. You can think of Coin burn as a sort of airdrop for the existing coin holders as they get direct beneifit from increase in the price of token. In an airdrop, you give free tokens to the investors which they might dump. In case of Token burning you just remove the token from the supply and investors still get benefit with the same number of token they have because the price has increased for every token.

 2- Trust and Confidence In The Project

When you do a coin burn, it creates trust and faith among the holders of those coins. The holders know that their tokens will not be affected by an over circulation and with regular coin burning, the price of the token will either remain stable or increase over time.

3-  Marketing Tactics

These days there is a lot of hype for token projects which announce their burning schedule. As soon as the coin burning schedule is announed, the price of the coin start to increased as peoplewith FOMO buy in, in anticipation of the less supply by the coin burn process. This helps the project to grow.

Lastly, The ultimate goal of the  token burn is to remove some of the token from the circulating supply making it more valuable.


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