What is BNB autoburn and how does it work?
BNB and its role in the blockchain ecosystem
Binance Coin (BNB) is the native cryptocurrency of the Binance ecosystem. Launched in 2017, BNB was initially touted as an ERC-20 token on the Ethereum blockchain with a total supply of 200 million. In 2019, Binance started its mainnet exchange and migrated all BNB tokens to BNB Chain.
Related: BNB Chain Beginner’s Guide: The Evolution of the Binance Smart Chain
BNB Chain is made up of two blockchains, both powered by BNB:
- BNB Beacon Chain: Formerly called Binance Chain, this blockchain handles the governance functions of BNB Chain such as voting and staking.
- BNB Smart Chain (BSC): Formerly known as Binance Smart Chain, this blockchain uses the Ethereum virtual machine to support smart contracts and is fully compatible with Ethereum’s tools and decentralized applications (DApps).
The native Binance Coin is now an essential part of the Binance ecosystem. It is used to power the operations of Binance and Binance.US exchanges, including other applications built on the BNB chain, such as:
- Pancake Swap
- monkey swap
- Autoshark Financing
- 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 burnt part?
A coin burn occurs when a cryptocurrency project destroys some of its coins, often 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 those coins can never be spent again.
Coin burns are often done on a quarterly or semi-annual basis. Binance, for example, has pledged to burn BNB coins every quarter until 100 million BNB are destroyed. This will leave a total supply of 100 million BNB – the maximum possible supply of BNB.
Related: Buyback-and-burn: what does it mean in crypto?
Blockchains and cryptographic protocols perform periodic coin and token burns for several reasons, including:
How is BNB burned?
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 gas fees spent on BSC. Since the 2021 BNB Smart Chain upgrade, BEP-95 has continued to burn around 860 BNB per day.
Binance CEO Changpeng Zhao implemented BEP-95 to speed up the burn rate of BNB, which was going slower than expected. By burning a portion of the gas fees collected by each block’s validators, BEP-95 provides a steady stream of BNB to burn.
The BEP-95 is entirely dependent on the BSC network, so it will continue to burn BNB after the 100 million burn target has been reached. BEP-95 burn progress can be tracked via the BNB Burns Tracker Bot on Twitter:
Quarterly automatic engraving
The second method is scheduled quarterly burns conducted by Binance. In these burns, a specific amount of BNB is redeemed on the open market and destroyed. The first burn was carried out in October 2017 and burned 986,000 BNB.
Quarterly burns are done using Binance earnings and are announced well in advance. The specific amount of BNB to burn is based on several factors, including overall profitability, circulating supply of BNB, and number of blocks produced per quarter. Since the last fire in April 2022, a total of 1,839,786.261 BNB have been burned:
What is BNB autoburn?
BNB Autoburn was created alongside the launch and rebranding of Binance Chain and Binance Smart Chain to BNB Chain. According to Binance, the autoburn 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 conduct quarterly BNB burns based on BNB trading volume on their exchange. However, quarterly burns were replaced with automatic BNB burning in December 2021.
Automatic 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 mechanisms provide better transparency and are more predictable than the previous quarterly burning method. According to the Binance team, the new autoburn mechanism will help stabilize the price of BNB and protect it from large swings.
How does BNB autoburn work?
From a technical perspective, BNB Autoburn uses the chain information from the BNB Smart Chain to calculate how much BNB to burn. This is how the mechanism “adjusts” the amount of burn.
The amount of consumption is also influenced by the dynamics of supply and demand, which means that when the price of BNB drops, the rate of consumption increases. As mentioned earlier, coin burns increase the value of a cryptocurrency.
BNB autoburn was designed to remain independent of BNB trading volume on Binance (which was its sole basis). This is to assure the BNB community that the process is auditable, objective and transparent.
The goal is to continue to run the autoburn until the 100 million mark. It will do this automatically using the formula below:
In the equation above, B represents the total amount of BNB to be burned and N represents the number of blocks produced on the BNB Smart Chain during the quarter. The average block time is 3 seconds, putting the approximate value of blocks produced per hour at 1,200 blocks. A standard calculation would give the value of N at around 2,592,000 blocks. The value may fluctuate depending on the exact number of days per month in a specific quarter.
P is the average price of BNB at the time. The average price fluctuates within a range of 10% to 20% per day, and the median value is determined by taking a sample based on an accepted Oracle vendor, such as ChainLink, for BSC. This is typically done every 10,000 blocks and takes around 8.3 hours to produce.
K is initially set to 1000 and is a constant price anchor. Its value is subject to change and largely depends on the BNB Smart Chain community. Members can submit a BEP proposal as well as vote by the community to update this value.
Quarterly BNB burn
The old quarterly burn mechanic has been updated to quarterly auto burns. Autoburn achieves the same goal but is more efficient and transparent. The chart below shows the predicted quarterly amount of BNB auto-Burn for a variety of average BNB prices:
How to check BNB autoburn history?
BNB autoburn history can be tracked. The website keeps a record of all previous etchings, including the details of each etching:
For example, if we click on the last burn, Burn #19, we can see the following details:
So how many BNB have been burned so far? To date, the total BNB burned is 35,750,684.88. According to current price data, this equates to $7,866,304,917.03. You can also track real-time values and details about BNB burn events.
When is the next BNB burn?
The last BNB Burn took place on April 19, 2022, destroying 1,830,382 BNB, or $772,363,806, via autoburn. There is no specific date yet for the 20th burn, but it is expected to occur anytime between July 16 and July 20, 2022.
Binance CEO Changpeng Zhao usually announces BNB burn dates on Twitter, so it’s worth watching this space for updates on the next autoburn.