How Does a Token’s “Burning” Mechanism Affect Its Utility or Security Classification?

A token burning mechanism, where tokens are permanently removed from circulation, can affect both utility and security classification depending on the reason for the burn. If the burn is tied to usage fees, it reinforces the utility function.

However, if the burn is implemented to reduce supply and increase the value of the remaining tokens for investors, it can strengthen the "expectation of profit" prong of the Howey Test. Regulators will examine the economic substance and the stated purpose of the burn.