Today, Binance officially executed its 21st quarterly removal of BNB tokens. In doing so, it compensated for the losses it faced in the bridge hack the previous week.
Ethereum competitor Binance Smart Chain, which is now known as the BNB Chain, is home to the native BNB token.
The ‘burn’ is a process in which crypto tokens are taken out of circulation permanently, acting as a preventative guard against inflation.
The BNB burn today removed over 2 million tokens from the market. By today’s values, those tokens are worth over $549 million.
Latest BNB Burn Recovers Loss from Last Week Bridge Hack
Compared to the latest burn, a hacker bagged 2 million BNB tokens in last week’s exploit. The tokens were minted out of thin air, which he was able to do using fake withdrawal proofs.
At the time, the value of the stolen BNB tokens was around $566 million. Luckily, Binance was able to mitigate losses. Binance chain validators successfully froze the network after the attack, which led to the hacker losing the coins.
Since the attack, the network has completed a hard fork to address a chunk of the damages. However, the hacker managed to transfer around $100 million worth of funds to other blockchains.
While BNB holders didn’t lose their funds because of the hack, the blockchain doesn’t permit minting new coins. This is because of BNB’s status as a deflationary token. That means a digital asset with decreasing supply over time. Because of this, each coin’s value rises, provided that the demand stays consistent.
Binance Switches to Auto-Burn Model
Previously, quarterly burns of BNB tokens were based on the profits that Binance earned from BNB trades over the exchange.
Now, however, the platform has switched to an algorithmic ‘auto-burn’ model. It uses a formula that calculates how many BNB tokens to remove from circulation. It does so according to the BNB price and number of chain blocks in a quarter. So the higher the price for a single BNB token, the more BNB tokens will be removed from circulation.
Binance Using Similar Approach to Burn Luna Classic Tokens
Back in July, Binance burned around 1.96 million tokens, which were worth about $444.6 million. In addition to burning its own tokens every quarter, Binance is also assisting with burning Luna Classic Tokens. To do so, it uses the same approach as the last burn model.
Binance takes fees that are collected via trades of Luna Classic Tokens and uses them to buy the tokens back from the market.
Once the BNB supply dips below 100,000,000 tokens, the periodic removal of tokens from circulation will stop. That’s because this set number of tokens is less than half of the total supply at the time it was launched.