Token burn
Also called: coin burn · burn · buyback and burn
Definition
A token burn is the permanent removal of tokens from circulation by sending them to an address that nobody can access or by destroying them through a smart contract.
This entry is shown in English.
How Token burn works
Burned tokens still exist on the blockchain in a technical sense, but no one holds a key to spend them. Common burn addresses are made of zeros or follow a known pattern, so anyone can verify the balance on a block explorer.
Projects burn tokens for different reasons. Some burn part of every transaction fee, as Ethereum has done with its base fee since 2021. Others use revenue to buy tokens on the market and burn them, as BNB does with its periodic burn program. Some burn unsold tokens after a sale.
A burn reduces supply, but it does not by itself create demand. If a project burns 1 percent of supply while unlocking 5 percent, net supply still grows. Check how burns are funded, whether they are automatic or discretionary, and how they compare with new issuance.
Example
Suppose a token has 500 million in circulation. In a quarter, the project spends 2 million USDT of revenue buying tokens at an average of 0.40 USDT, receiving 5 million tokens, and burns them. Circulating supply drops to 495 million, a 1 percent reduction. In the same quarter, 12.5 million new tokens unlock for the team. Net supply therefore still rises by 7.5 million tokens, or 1.5 percent.
Common mistakes
- Assuming any burn announcement means the price will rise.
- Not checking whether burns are larger or smaller than new token issuance and unlocks.
- Believing a project's burn claim without verifying the burn address on a block explorer.
Learn and practise
FAQ
Why do crypto projects burn tokens?
To reduce supply, offset issuance, share revenue with holders indirectly or remove unsold tokens. The effect depends on how much is burned relative to new supply and demand.
Can burned tokens be recovered?
No, if they were sent to a true burn address or destroyed by a contract, no one can access them again.
Is ETH burned?
Yes. Since 2021, the base fee portion of every Ethereum transaction fee is burned.