Author: Darshan Gandhi, Polaris Fund
Compiled by: Deep Tide TechFlow
In-depth exploration of centralized exchanges (CEX) and their token destruction: mechanisms, frequency, and other aspects.
The repurchase and destruction by exchanges is not a new phenomenon.
These operations have been quietly ongoing for years, shaping the supply-demand landscape long before attracting mainstream attention. Almost every major centralized exchange (CEX), including Binance ($BNB), OKX ($OKB), Gate ($GT), KuCoin ($KCS), and MEXC ($MX) has implemented some form of destruction plan for over five years.
Nowadays, the presentation of token destruction has changed.
Hyperliquid ($HYPE) places token buybacks at the core of its token strategy rather than hiding it in the fine print. It has transformed the destruction mechanism from a background function into a significant feature. More importantly, Hyperliquid operates destruction as part of financial management, running continuously and openly, setting a new benchmark for transparency.
This positioning makes the destruction mechanism appear refreshing, even though established exchanges like Binance, OKX, Gate, KuCoin, and MEXC have been doing similar things for years. The difference is that established exchanges have never marketed so aggressively or integrated the destruction mechanism so tightly into financial operations (the reasons will be analyzed in detail later).
The destruction mechanism is essentially a means of value transfer, demonstrating the following points:
How exchanges link token supply to their business models
What leverages drive scarcity (profits, formulas, or governance)
How to build or lose credibility over time
In addition, the destruction mechanism also acts as an inflation control tool, stabilizing supply by offsetting token unlocks or issuances.
The current question is no longer whether destruction will happen, but whether the execution of destruction is sufficiently sustained, and whether the model can provide transparency for token holders.
To clearly see this shift, here is a breakdown of how exchange token supply dynamics have changed.
Key points: When analyzing exchange tokens, the destruction model is crucial. Designs based on profits, formula-driven, or governance-controlled will have vastly different impacts on scarcity, predictability, and trust.
Destruction models: operating models of exchanges
Destruction plans of exchanges are mainly divided into three categories:
Linked to profits or income (Gate, KuCoin, MEXC): a fixed percentage of profits is used to buy and destroy tokens. Cadence is predictable and auditable.
Formula or fund-driven (Binance, OKX, Bitget): supply cuts are determined by formulas or fund allocations. The scale is larger, but the correlation with business health is weaker.
Governance-driven (Bybit, HTX): the destruction rhythm is determined by token holder voting. This model decentralizes control but introduces political and execution risks.
The destruction plan is also constantly evolving. For example: Binance shifted from a profit-linked destruction mechanism to one based on price and block count, later adding the BEP-95 gas fee destruction mechanism. Binance once suddenly changed the destruction rate as proof of BNB's non-securitization. From a regulatory standpoint, this de-profiting destruction reduces securities classification risk, but the continuously changing mechanism leaves the market uncertain.
In addition, other CEXs have also updated their dynamics, for example:
KuCoin has adjusted the destruction rhythm to once a month for transparency.
Gate has maintained a stable 20% profit distribution since 2019.
Since the maximum supply of tokens is fixed, destruction is not common. Once destruction occurs, it is valuable because it can reduce circulating supply and accelerate the process of complete supply compression.
Key points: The destruction model determines persistence. Profit-linked = stable and auditable. Formula-driven = scalable but opaque. Governance-driven = decentralized but harder to trust. Sudden model shifts (e.g., Binance) can create structural risks, while increased transparency (e.g., KuCoin) can build trust.
Regulatory Perspective
The destruction model is not just about economics, but also involves regulatory positioning.
In traditional stock markets, corporate buybacks have long been controversial, and the U.S. Securities and Exchange Commission (SEC) has raised questions about this, including:
Market Manipulation
Internal Interests
Weak disclosure standards
Token destruction is equivalent to buybacks in cryptocurrency, but it lacks legal protection. This gap changes how the model is designed.
Profit-linked destruction looks most like a buyback. Since it directly ties token value to profits, it attracts closer regulatory scrutiny.
Formula-driven destruction mechanisms (e.g., Binance's automatic destruction, OKX's supply cap) are easier to defend. They can be described as mechanical, income-independent, and less likely to trigger securities classification.
Governance-driven destruction increases political factors. Regulators may consider community voting insufficient to prevent manipulation.
Key points: The design of destruction is both part of token economics and part of legal defense. Decoupling destruction from profits reduces regulatory risk but also lowers transparency for token holders.
Trends in exchange models
The following three trends are particularly notable:
1. Scale and Opacity
Binance has the largest scale of destruction (about $1 billion per quarter), but the rules are constantly changing.
OKX ultimately set the supply cap at 21 million after years of rhythm.
Key point: Scale attracts attention, but changes in rules and delays in setting limits weaken transparency.
2. Stable profit-linked rhythm
Gate: fixed 20% profit distribution since 2019, has destroyed about 60% of the supply.
MEXC: 40% profit distribution, has destroyed about 57%.
KuCoin: switched to monthly destruction in 2022, but the scale of destruction will shrink as profitability increases (10% of profits)
Key points: Profit-linked models are the easiest to predict. The less capital consumed, the worse the corporate health.
3. New entrants and governance risks
Bitget: $5 billion destruction in December 2024, currently about 30 million tokens per quarter, aiming for 95% destruction.
Mantle: destroyed 98.6% of BIT during migration; now relies on DAO.
Key points: Marketing does help, but only verified rhythms can enhance persistence.
The rhythm, scale, and quality of destruction
The extent of supply cuts varies from about 30% for Binance to about 93% for OKX. However, the market is pricing not only the percentage but also the sustainability of the destruction scale and the predictability of the rhythm.
Gate, KuCoin, and MEXC: stable profit-linked destruction → building trust
Binance: largest scale → obscured by constantly adjusted formulas
OKX: Enhances confidence through $7.6 billion massive destruction → supported by years of consistency
Bitget: $5 billion destruction → first event not yet verified, needs to observe subsequent developments
Crypto.com: revoking 2021 destruction in 2025 → leads to reduced trust
Note: The large-scale destruction in August 2025 coincided with a significant rise in OKB, indicating that one-time supply events can sometimes drive recent price trends.
Key points: Do not just track the quantity of destruction, but ask: Is the scale repeatable? Is the rhythm linked to profits? Is governance stable? Focus on the dollar scale of destruction each quarter/year. Huge destruction = credibility indicator, not a guarantee.
Our overall view
Consistency is more important than scale: the market is more inclined to reward repeatability rather than just generating headlines.
The best profit-linked model: it ties token value to the health of the exchange and is easy to assess (transparent).
Huge destruction is just a mark: without follow-up actions, they gradually become superficial.
Currently, buybacks remain an important marketing cost.
Interestingly, centralized exchanges actually choose to reinvest profits back into their own tokens instead of retaining earnings in cash or USDC. This practice concentrates the treasury value in the tokens themselves while amplifying both returns and risks.
Finally, as we have attempted to illustrate throughout this report, true innovation is not in the destruction itself, but in the continuity and transparency of the destruction. Hyperliquid undoubtedly redefines destruction as a visible, cyclical financial management function. This effectively reshapes industry expectations: nowadays, merely having scarcity is not enough. Regular, clear, and economically consistent scarcity is the truly valuable direction for all exchanges. This change may pose significant challenges for those slow-moving CEXs.
