Token Burn: What It Is and Why It Matters

A token burn occurs when a crypto project permanently removes a certain amount of its tokens from circulation. This is typically done by sending the tokens to a “burn wallet”—a special address with no private key, meaning the tokens can never be retrieved or used again. For example, Binance, one of the largest crypto exchanges, routinely burns its BNB tokens as part of its quarterly token burn plan to reduce supply and increase long-term value.

The main reason this matters is scarcity. In economics, when supply decreases and demand remains constant or increases, prices generally rise. Token burns follow the same logic. By reducing the circulating supply, projects aim to increase the value of the remaining tokens. It’s a mechanism to reward loyal holders, much like how a company might buy back shares to boost the value of its remaining stock.

Projects use token burns for different strategic reasons. Some do it to signal long-term confidence in the project, others to manage inflation caused by staking or mining rewards. A good example is Ethereum’s EIP-1559 upgrade, which introduced a base fee burn mechanism to help control inflation. Just as stock buybacks can be seen as a commitment to shareholders, token burns can strengthen trust in a project’s economic model and long-term vision.