The token burn mechanism explained
If you read our whitepaper, you probably noticed that we have committed to burning all of the tokens that were not sold during the crowdsale.
How many tokens from the crowdsale phase will be burned?
- During the token generation event, the total of 490M tokens were allocated for the crowdsale.
- 206M tokens were successfully sold to +12k participants.
- The leftover 284M tokens were unsold.
- Total circulating supply after burning will consist of 419M of tokens.
What’s in it for the token holders?
- Because the burn will result in a higher token valuation. The more tokens are burned, the higher chance of price increase.
- Burning means rendering the token inaccessible to everyone (including the owner, contract creator and the user). In case of ETH, you can send ETH to the address 0x0000000000000000000000000000000000000000. The ETH that has been sent to such address is lost forever — destroyed (burned).
Why should I care if the tokens are burned? The number of the tokens I own remains the same!
Let’s dive into the valuation of the cryptocurrencies. What causes the value of the cryptocurrencies to fluctuate? The value depends on the simple function of demand and supply. When everyone wants the token (High demand), they compete with each other to buy it which drives the price higher!
But what if there is enough supply for everyone to buy the tokens? The high supply does not allow the competition to develop effectively, leading to lower price and possibly decrease in the price. If we burn half of the tokens, the total supply decreases. The demand-supply dynamic is then more likely to push the price higher!
Real life case: Binance
Let’s look at what happened to Binance Coin (BNB) which has experienced impressive growth. Each Quarter, Binance uses 20% of its profits to buyback and burn the BNB tokens. Each burn decreases the token supply, therefore the value of the token increases. It is clear that BNB token burns are creating important market moves. Similarly, the massive token burn will increase the price of DOR.