DeFi Kingdoms Token Burning and the Perilous Journey
We’ve all heard the term “burning” tokens. But what does that actually mean? Why would a project or person do that? Why would we have a quest like the Perilous Journey, that involves burning Heroes and why would anyone do that?
Let’s take a quick look at token burning in general and then get to the “burning” question on all of your minds — “why Perilous Journey”!
What is token burning?
What does it mean to “burn” tokens in the cryptocurrency context?
Essentially, “burning” is a term used to refer to the action of permanently removing a certain number of tokens from circulation. Tokens that are burned can never be recovered. This has a deflationary effect on the supply of the particular token. This also applies to NFTs, which are tokens themselves!
How are tokens burned?
Because the blockchain is immutable, a token can never truly be deleted, so, the act of burning a token generally refers to sending it to an address from which it can never be retrieved. This can occur in a few ways. One could simply manually transfer tokens to a burn address. Another very common method is to have an automatic transfer to a burn address built into a smart contract so that the burn is automatic upon certain actions.
Sometimes projects will burn as a one-time event, and sometimes burning is a feature built into the tokenomics.
Token Burning in DeFi Kingdoms
What tokens are burned in DeFi Kingdoms? Tokens are burned in many ways in DeFi Kingdoms. When in-game items (which are all tokens) are used to make things like potions or when Gaia’s Tears are used to summon, they are burned. All of these in-game items in DeFi Kingdoms do not have fixed supplies, and as such, are inflationary by nature absent some sort of burn mechanic.
JEWEL, on the other hand, does have a fixed supply and is also subject to certain automatic burn mechanics. 1% of every in-game JEWEL fee is burned. At the time of this article, the two sources of in-game JEWEL transactions are (1) summoning fees and (2) the 3.75% Tavern fee charged on all Hero sales and rentals.
Where do these burned DeFi Kingdoms tokens go?
All of the current burns are automatic and built into the underlying smart contracts. You can see the burn address where burned tokens from summoning go in the example below. Note that this address is used by multiple projects, and this is not the same address that the burned Heroes will go to. Consider this like the garbage dump where everyone goes to dump the tokens they are burning.
Manual Burns. Anyone can also burn tokens whenever they want by sending them to a burn address. One way this manifests itself is through the Barkeep Kessing bot in the DeFi Kingdoms Discord Server. Users can manually burn JEWEL in front of their friends in Discord, forever removing those tokens from circulation.
Why burn tokens?
There are many reasons why a project or individual might choose to burn tokens. The most common is that it has a deflationary effect. Basic economics stipulate that, all things being equal, if the supply goes down and demand remains constant, the value of the remaining tokens will tend to rise.
Those familiar with equity markets may have also heard of a stock repurchase by a company. This is when a company buys back its own shares, turning them into treasury shares and effectively returning value to the shareholders directly. A token burn is analogous.
An automatic, built-in burning mechanic is often instituted into cryptocurrency projects with the aim of assuring holders that the future supply of the token will shrink over time, calming concerns of inflation and dilution.
A popular example is what Ethereum introduced in the summer of 2021 by adding a burning system to the network in order to solve the eternal problem of high gas fees.
As it relates to DeFi Kingdoms and JEWEL — JEWEL is not inflationary because it has a hard cap, however there are still benefits to having a slightly deflationary model to mitigate the long-term downward price movement that can sometimes result from token unlocks.
Why Burn Hero NFTs in the Perilous Journey?
So we can at least understand why JEWEL has this 1% automatic burn mechanism on in-game JEWEL fees, but now onto the real question of this article, why burn our precious Hero NFTs?
For those unfamiliar with the Perilous Journey — this is a one-time special event whereby players can choose to send their Hero on a dangerous journey to discover safe passage to Crystalvale. Those that die will be burned and forever lost (but with some recompense!). Those that survive return with glory and gleaming rewards. You can read more about it here!
The NFT gaming space has seen a lot of various burn mechanics with NFTs. Sometimes NFTs are burned and essentially upgraded or traded in for new NFTs. In this case, the Perilous Journey serves multiple purposes:
- The Journey encourages and incentivizes people that are playing the game. In other words, those who have actively been leveling up, buying more Heroes, or summoning for rarer pairs have the option to send Heroes with a higher chance of survival and better rewards. Most importantly, some of the most valued DeFi Kingdoms assets, Gen0 Heroes, will be given away to owners that send Heroes on the Perilous Journey. See the document linked above for more details.
- This unique approach to distributing 200 of the rare Gen0 Heroes creates a positive feedback loop that incentivizes gameplay instead of simply minting more Heroes to investors that will likely buy and flip them — filling the team’s coffers. Instead, all of the value is being given straight back to the community.
- The burning creates deflationary pressure on the Hero pool, which for the time being will create additional value for remaining Heroes and provide a bit of a reset from the recent spike in Hero summoning.
- This creates a lore-based, in-game action that helps connect the dots between Serendale and the upcoming Crystalvale expansion on the Avalanche blockchain.
- The rewards provide a calculated risk and reward structure that all players can participate in. While larger wallets may have the ability to send more Heroes, all wallets are still subject to the same risks and rewards. Larger wallets may send more, but can inversely lose more by doing so.
- The rewards include new in-game items that can only be obtained (at least for now) through this quest, creating valuable new opportunities and further emphasizing the positive feedback loop that incentivizes gameplay, bolstering the DeFi Kingdoms ecosystem.
The Perilous Journey may not be for everyone. Everyone’s risk appetites will be different, but we hope that you are all as excited as we are to embark on this event leading up to the Crystalvale expansion on Avalanche!
