Explain the Concept of “Token Burn” and Its Effect on Fungible Token Supply and Value.
A token burn is the permanent removal of tokens from the circulating supply by sending them to an unspendable address, often called a "black hole" address. This action is usually performed to reduce the total supply, creating scarcity.
By reducing supply while demand remains constant or increases, a token burn is a deflationary mechanism intended to increase the value of the remaining tokens. It is a common practice in projects to manage tokenomics and incentivize long-term holding.
Glossar
Token Burn
Process ⎊ A Token Burn is the intentional, cryptographic destruction of a quantity of digital assets, executed by sending them to a publicly verifiable, non-recoverable address on the blockchain.
Unscheduled Token Burn
Burn ⎊ An unscheduled token burn, within cryptocurrency, options, and derivatives contexts, represents the deliberate and unexpected reduction of a token’s circulating supply, distinct from pre-defined burn mechanisms.
Token Burn Mechanism
Supply Reduction ⎊ Token Burn Mechanism describes the intentional, permanent removal of a specific quantity of a cryptocurrency's circulating supply from the active ledger, typically achieved by sending the tokens to an unrecoverable address.
Fungible Token Supply
Circulation ⎊ Fungible token supply represents the total quantity of a specific cryptographic token that is publicly available for transfer and utilization within a blockchain network, directly impacting its market dynamics.
Burn
Destruction ⎊ The process wherein cryptocurrency tokens are permanently removed from circulation by sending them to an unrecoverable address, effectively reducing the total supply.