How Is a Token Burn Mechanism Typically Funded in a DeFi Protocol?
A token burn mechanism is typically funded by a portion of the protocol's generated revenue, such as transaction fees, liquidation fees, or interest earned on assets. For example, a DEX might burn a small percentage of every trading fee collected.
This ensures the burn is sustainable and directly links the deflationary pressure to the utility and usage of the protocol.
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.
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.
Deflationary Pressure
Mechanism ⎊ Deflationary pressure within cryptocurrency, options, and derivatives manifests as a reduction in available liquidity coupled with a contraction in market valuations, often stemming from factors like token burns, reduced minting rates, or deleveraging events.
Burn Mechanism
Deflation ⎊ A Burn Mechanism is a deliberate tokenomics feature where a portion of transaction fees or protocol revenue is permanently removed from the circulating supply, often resulting in deflationary pressure on the asset.
Burn
Destruction ⎊ The process wherein cryptocurrency tokens are permanently removed from circulation by sending them to an unrecoverable address, effectively reducing the total supply.