Stellar (XLM) foundation has burnt $4.4 billion worth of XLM in November
25th November 2019
There were 105 billion Stellar Lumens until the end of October 2019. The Stellar Development Foundation (SDF) announced a week later that it had burnt (destroyed) more than 55 billion of those. The XLM/USD pair has reacted positively to the news by surging nearly 25% in one hour just after the burning took pace. Crypto burning is a process used to reduce the total number of available Crypto coins. The most common reason for doing this is to increase the value of the remaining coins. It is simple economics that, scarcity generates an increase in price. This of course presumes that there is sufficient demand for the ‘product’.
What is Burning of tokens?
Token burning happens with Altcoins and other smaller tokens, with a primary goal of controlling the number of tokens in circulation. This act, in turn, provides investors with greater incentives.Burned tokens are not disintegrated; however, they cannot be used any further. Either the developer would repurchase the tokens in circulation or render them unavailable. To accomplish this task, there must be a public wallet with irretrievable functions where the developer can put the tokens’ signatures. It is also referred to as a perma-frozen “eater address.” All nodes can view the details.
What are Stellar Lumens (XLM Tokens)
According to the website https://www.stellar.org/ and as defined by the Stellar Development Foundation (SDF) :
Stellar is an open network for storing and moving money.
Stellar provides access to reliable money, particularly in places where the local currency is uncertain.
Dozens of financial institutions and tens of thousands of individuals issue assets and settle payments on Stellar.
Why did the burning happen?
Token holders are mostly the beneficiaries of token burning, no matter how it is carried out. By reducing the market supply, the value of the coins increases. The fewer the coins available on exchanges, the more valuable they get. It is the reason why crypto projects and developers set a limit in supply in the present and future times alike.
By relying on this finite faucet, crypto projects can enhance the value of the existing coins. They would also be able to create incentives for token holders and ultimately gain ongoing support. SDF announced that the remaining 50 billion Lumens could now be managed more efficiently. Work would proceed to increase usage of the crypto, this would in turn generate more demand for Lumens. With supply having fallen by over 50%, pressure would be exerted on the price — this would cause the price of Lumens to move up.
What is Proof of Burn ?
Proof-of-Burn is just one of the famous mechanisms that sprang out from token burning. This method is used by miners to acquire mining rights. Although most industry miners still prefer the proof-of-work system because of its association to Bitcoin, some argued that it is costly as it devours significant resources. The proof-of-burn aims to eliminate these issues by limiting the blocks verifiable to miners.
Burning of tokens can significantly lessen the total number of miners at a given time frame. It means there would be lower competitions, and the need for significant resources would be taken out of the picture as well. But what about large miners who can burn tokens with vast amounts? To avoid having a disproportionate capacity, most PoB implementations today set a decay rate whenever a large miner verifies a transaction.
PoB and PoS have similarities as well. Miners are required to lock up their assets before they can gain mining rights. However, unlike PoB, PoS miners who decide to stop mining have the option to take their coins.
Conclusion
The company’s blog post read that the company wants to put quality over quantity as it has gained experience from its airdrops. It noted that airdrops “his diminishing effects,” mainly when they are conducted in an “outsized amount.” These reasons encouraged the company to reduce the XLM supply to focus on the platform’s goals. The company will be allocating the remaining XLM supply in the following way:
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