Token Burn
Token Burning
Permanent removal of tokens from circulation
Definition
Token burning permanently removes tokens from circulation by sending them to an unrecoverable address. This reduces total supply and can increase the value of remaining tokens.
Example
Binance regularly burns BNB tokens to reduce supply, while Ethereum burns ETH through EIP-1559's base fee mechanism.
What to check
Treat it as a token-design concept: inspect supply mechanics, holder incentives, redemption paths, and governance controls. The main checks are: Irreversible action; Economic assumptions; Governance decisions.
Risks to Consider
- Irreversible action
- Economic assumptions
- Governance decisions
Common Questions
What does Token Burn mean in DeFi?
Token Burn means Permanent removal of tokens from circulation. The useful question is not only the definition, but how the mechanism changes risk, return, liquidity, or governance for the user.
How is Token Burn used in practice?
A practical example: Binance regularly burns BNB tokens to reduce supply, while Ethereum burns ETH through EIP-1559's base fee mechanism.
What should I check before relying on Token Burn?
Check irreversible action, economic assumptions, governance decisions. Also verify liquidity, oracle assumptions, admin controls, and whether the protocol has been tested during stressed markets.