How to increase the trust that a community has in a currency, or more specifically a cryptocurrency? Binance seems to want to provide a mathematical answer to this, with a formula that is supposed to improve the burn mechanism of the binance coin (BNB).
A more transparent and predictable burn system for the BNB
Binance wants to replace its quarterly burn or destruction program of its binance coin (BNB) token, with a self-burn mechanism that is objective, verifiable, and predictable for its community. The exchange details the changes to the initial process in a December 22, 2021 blog post.
The binance coin is the native token of the Binance platform. The BNB in its architecture is compatible with Ethereum (ETH) – and thus better leverages DeFi – developed within the Binance Chain ecosystem – the main blockchain of the exchange. The binance coin is notably used for the execution of smart contracts. Its holders can also earn rewards by staking their BNB.
Binance had pledged to use 20% of its quarterly profits to buy BNB to destroy, until the outstanding supply of the token reaches 100 million units. The maximum supply of binance coin is 200 million BNB. This periodic burn is intended to increase the price of the binance coin over time.
The mathematical formula of the BNB self-burn
With auto-burn, the amount of binance coin to be burned periodically does not depend on the revenue generated on Binance with the use of its native token. Instead, it will be based on the price of the BNB which is supposed to reflect the supply and demand of the token. This amount B of tokens to burn quarterly is determined by the following formula:
B = (N x 1000) / (P+K)
N represents the number of blocks produced on the Binance smart chain during the quarter. The creation time of a block on BSC is typically 3 seconds. Knowing that one hour is composed of 3,600 seconds, and that each day is composed of 24 hours, the number of blocks produced over 3 months for 30 days per month, is : 3 x 3 600 x 24 x 30 x 3 = 2 592 000 blocks.
P is the average price of the BNB against the US dollar. Specifically, it is “the median value of a sampling on a widely accepted oracle price provider (e.g., ChainLink) on BSC, and the sampling frequency is every 10,000 blocks.”
K is initially set to 1,000. It serves as a price anchor, and its value can change via the filing of a BSC BEP, which is a proposed evolution of the Binance Smart Chain. The value of K can also be changed by a community vote.
Binance will be credited with sparing no effort to increase the value of its native token, and by extension, to increase the absolute value held by its holders. The platform has always jealously guarded its own destiny, even if recently, the reference exchange has hinted at a capacity to perhaps share its empire.