With the end of the first quarter of 2022, Binance conducted the 19th quarterly BNB burn. This time however the burn was carried out via an Auto Burn Mechanism, which was introduced in December 2021.
FTX CEO Sam Bankman-Fried tweeted his input regarding the Auto Burn procedure. He first explained the procedure. The procedure determines the amount of tokens to be burned via a formula :
B = (N * 1000)/ P + 1000
B is the amount of BNB to burn. N is the total number of blocks produced on BSC during the calendar quarter. P is an average price of BNB against the US dollar.
Bankman says that roughly 2.5 million BSC blocks are created every quarter. So the annual formula changes to
B = 10 billion/ P + 1000
Bankman points out the price of the token will determine the amount of tokens burnt every quarter. Thus, the token’s burn rate is constantly adjusted with the price.
If the price of the BNB token is greater than $1000, the total market cap will be around $200 billion. At this price, $10 billion worth of BNB tokens will be burnt every year until 100 million tokens are left.
If the price is less than $1000, 10 million tokens will be burnt every year for 7-10 years until the supply reduces to less than 100 million tokens.
Bankman feels that this is a “cool mechanism”, and burnt around 1.8 million tokens at a price of around $400 this quarter. This wiped out roughly $700 million from the market.
Bankman concluded his thread saying that in this new mechanism, “the burn does not drive the price but the price drives the burn.” Binance will continue burning tokens until its supply gradually reduces to under 100 million BNB.
The company until this quarter burnt the tokens based on the BNB trading volume on the Binance exchange. This is the first quarter that the Auto Burn mechanism was applied.