What is BNB auto-burn and how does it work?

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BNB and its Role in the Blockchain Ecosystem

Binance Coin (BNB) is the native cryptocurrency of the Binance ecosystem. Launched in 2017, BNB was originally presented as an ERC-20 token on the Ethereum blockchain with a total supply of 200 million. In 2019, Binance launched its mainnet swap and moved all BNB tokens to the BNB chain.

related: A Beginner’s Guide to BNB Chain: The Development of Binance Smart Chain

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The BNB chain is made up of two blockchains, both powered by BNB:

  • BNB Beacon Chain: Previously called Binance Chain, this blockchain handles BNB chain governance functions such as voting and staking.
  • BNB Smart Chain (BSC): Once known as Binance Smart Chain, it uses the Ethereum Virtual Machine to support blockchain smart contracts and is fully integrated with Ethereum’s tools and decentralized apps (DApps). is compatible.

The native Binance Coin is now an essential part of the Binance ecosystem. It is used to power the operations of the Binance and Binance.US exchanges, including other applications built on the BNB chain, such as:

  • pancake swap
  • biswap
  • app swap
  • autoshark finance
  • greed
  • Libera.Financial
  • nominex/nomyswap
  • age of dinosaurs
  • dex finance
  • open leverage

These are just a few of the many dApps built on the BNB blockchain. Binance also remains the largest cryptocurrency exchange by trading volume and is one of the most popular exchanges in the world.

What is a Coin Burn?

A coin burn occurs when a cryptocurrency project liquidates some of its coins, often in order to reduce the circulating supply and increase the value of the remaining coins. Coins are sent to a dead crypto wallet with an unknown private key, meaning these coins can never be spent again.

Coin burning is often done on a quarterly or semi-annual basis. For example, Binance has committed to burning BNB coins every quarter until 100 million BNB is destroyed. This would leave a total supply of 100 million BNB – the maximum possible supply of BNB.

related: Buyback-and-burn: What does this mean in crypto?

Blockchain and crypto protocols do coin burn and token burn from time to time for a few reasons, including:

How is BNB burnt?

There are coin burning mechanisms by which BNB is burned, as explained below:

Real-time Burning Mechanism (BEP-95)

The first is the Binance Evolution Proposal (BEP)-95 burning mechanism. Through BEP-95, BNB is burned in real time by burning a portion of the gas charges spent on the BSC. Since the 2021 upgrade to the BNB Smart Chain, BEP-95 continues to burn approximately 860 BNB per day.

Binance CEO Changpeng Zhao implemented BEP-95 to accelerate the burn rate of BNB, which was running slower than planned. By burning part of the gas fee collected by validators for each block, BEP-95 provides a continuous stream of BNB to be burned.

BEP-95 is completely dependent on the BSC network, so it will continue to burn BNB even after the 100 million burn target is reached. BEP-95 burn progress can be tracked on Twitter via the BNB Burns Tracker bot:

quarterly auto-burn

The second method is the scheduled quarterly burn conducted by Binance. In these burns, a specific amount of BNB is bought back from the open market and liquidated. The first burn was done in October 2017 and 986,000 BNB was burned.

Quarterly burns are conducted using the profits of Binance and are already announced. The specific amount of BNB to be burned is based on several factors, including overall profitability, BNB circulating supply, and the number of blocks produced per quarter. As of the most recent burn in April 2022, a total of 1,839,786.261 BNB have been burned:

What is BNB Auto-Burn?

BNB Auto-Burn was built into BNB Chain with the launch and rebranding of Binance Chain and Binance Smart Chain. According to Binance, the auto-burn mechanism was designed to maximize the value of the BNB token and provide a sustainable and secure long-term growth plan for the BNB ecosystem.

Binance used to burn BNB quarterly based on BNB trading volume on its exchange. However, the quarter burn was replaced by BNB Auto-Burn in December 2021.

Auto-burns are still done quarterly, but they are no longer based solely on trading volume on Binance.

The BNB auto-burn mechanism is automated to adjust the amount of BNB that will need to be burned based on two factors:

  • bnb price
  • Number of blocks generated on BSC per quarter

According to Binance, the new BNB burning mechanism offers better transparency and is more predictable than the previous quarter burn method. According to the Binance team, the new auto-burn mechanism will help stabilize the price of BNB and protect it from large volatility.

How does BNB Auto-Burn work?

From a technical perspective, BNB Auto-Burn uses on-chain information from the BNB smart chain to calculate how much BNB needs to be burned. This is how the system “adjusts” the burn amount.

The burn amount is also affected by supply and demand dynamics, meaning that when the price of BNB falls, the burn rate increases. As mentioned earlier, coin burning increases the value of the cryptocurrency.

BNB auto-burn was designed to be independent of BNB trading volume on Binance (which used to be its sole basis). This is to assure the BNB community that the process is verifiable, objective and transparent.

The goal is to continue running Auto-Burn until the 100 million mark. It will do this automatically using the formula below:

In the above equation, B represents the total amount of BNB burned and N represents the number of blocks produced on the BNB smart chain during the quarter. The average block time is 3 seconds, setting the estimated value of blocks produced per hour to 1,200 blocks. A standard calculation would yield a value of N as approximately 2,592,000 blocks. Prices can fluctuate depending on how many days per month there are during a specific quarter.

P stands for the average price of BNB at the time. The average price fluctuates within the range of 10% to 20% per day, and the average price for BSC is determined by taking a sample based on an approved oracle provider such as Chainlink. This is usually done every 10,000 blocks and takes about 8.3 hours to produce.

K is initially set to 1000 and is a constant value anchor. Its value is subject to change and largely depends on the community of BNB Smart Chain. Members can submit a BEP proposal to update this value as well as cast a community vote.

bnb quarterly burn

The old quarterly burn mechanism was updated to quarterly auto-burn. Auto-Burn achieves the same purpose but is more efficient and transparent. The chart below shows the estimated quarterly BNB auto-burn amounts for different types of BNB average prices:

How to check BNB auto-burn history?

BNB auto-burn history can be tracked. The website keeps a record of all previous burns including details of each burn:

For example, if we click on the latest burn, burn #19, we can see the following details:

So, how much BNB has burned so far? To date, the total BNB burned is 35,750,684.88. As per current price data, this is equivalent to $7,866,304,917.03. You can also follow the details of real-time prices and BNB burn events.

When is the next BNB burn?

The latest BNB burn occurred on April 19, 2022, in which 1,830,382 BNB or $772,363,806 was destroyed via auto-burn. There is no fixed date yet for the 20th burn, but it is expected to happen sometime between July 16-20, 2022.

Usually, Binance CEO Changpeng Zhao announces the BNB burn date on Twitter, so it is worth watching that space for updates on the next auto-burn.