Binance Coin (BNB) is a cryptocurrency created by the popular crypto exchange Binance. As one of the largest exchanges in the world, Binance has found ways to strategically decrease BNB's circulating supply over time through various token burns and new platform utilities. This has served to increase the value of BNB by lowering supply while demand rises.
How Binance Coin works
BNB was launched through an initial coin offering in 2017 as an ERC-20 token on the Ethereum blockchain. The total supply was capped at 200 million BNB. Since then, Binance has transitioned BNB to its own blockchain called the Binance Chain.
BNB serves multiple purposes on the Binance ecosystem. Firstly, it can be used to pay trading fees on the exchange at a discounted rate. BNB can also be used to participate in token sales listed exclusively on the Binance Launchpad. Additionally, BNB powers transactions and operations on the Binance Chain.
Quarterly BNB burns
One way Binance decreases the circulating supply of BNB is through quarterly coin burns. Every quarter, Binance uses 20% of its profits to buy back and permanently remove BNB tokens from circulation. This puts deflationary pressure on BNB by reducing the total supply over time.
So far, Binance has burned over 18 million BNB through its quarterly burns. This has reduced the circulating supply to under 155 million BNB as of September 2022. With the aggressive burn strategy, the supply will continue dropping as long as Binance remains profitable.
BNB adoption for fees and transactions
Another factor decreasing the circulating BNB supply is growing adoption on Binance and its blockchain. BNB can be used to pay for fees on the exchange. With rising trading volumes, there is increasing utility for paying fees in BNB.
Additionally, the Binance Chain is seeing wider adoption. The chain now supports DeFi applications, NFTs, metaverse projects and more. As adoption grows, there are more transactions occurring on-chain, which requires BNB as gas fees. More BNB getting locked up for gas means lower circulating supply.
New burning events
Aside from the quarterly burns, Binance also holds new burning events to further reduce BNB's circulating supply.
In May 2022, they burned nearly $600 million worth of BNB tokens retrieved from a buggy smart contract. And in July 2022, they burned over 2 million BNB (worth $450 million) to commemorate reaching a major milestone of 1 billion total transactions processed on BNB Chain.
These additional burning events accelerate deflation beyond the quarterly burns. Binance is essentially jumpstarting more significant supply reductions sooner.
Impact on BNB price
The deflationary mechanisms put in place by Binance have proven successful in applying upwards pressure on BNB's value. Despite the crypto bear market in 2022, BNB has remained one of the top performers and most resilient large-cap tokens.
BNB reached an all-time high of $686 in May 2021. After declining to around $320 in June 2022, it has rebounded to over $350 due to renewed crypto market optimism. With so much BNB getting burned consistently, it's no surprise investors see upside potential in holding this shrinking asset.
Binance Coin has firmly established itself as one of the most prominent utility tokens in the crypto space. Between the quarterly BNB burns, growing adoption for fees/transactions, and new burning events, the circulating supply is rapidly decreasing. These deflationary forces appear to be working as designed - evidenced by BNB's ability to rebound strongly even amidst bearish macro conditions. As such, the long-term investment thesis for BNB looks compelling as it continues becoming a scarcer asset.
"As the founder of Binance and creator of BNB, I envisioned this coin becoming a deflationary force to increase value for all users of our ecosystem. Though we face much volatility and uncertainty in crypto, I firmly believe the utilities and burning mechanisms underlying BNB will drive further adoption and new heights of success for the Binance Chain community."
Should traders buy BNB now?
BNB could be a solid investment for traders seeking upside exposure if the crypto market sentiment improves. Here are some key points to consider:
- BNB remains fundamentally strong due to its wide utility and aggressive deflationary practices. This could allow it to outperform the broader crypto market.
- Technical analysis shows BNB holding a key support level around $350 despite bearish conditions. Breaking overhead resistance at $380 could confirm a trend reversal.
- Macro conditions like rising interest rates have weighed heavily on crypto prices. But optimism is growing about a soft landing for the economy, which could re-ignite interest in digital assets.
Overall, accumulating BNB on dips makes strategic sense for traders with a high risk tolerance. Proper risk management is still essential. But BNB's combination of deep value and shrinking supply presents an intriguing opportunity during the ongoing bear market.
What is the next milestone for BNB adoption?
BNB has already seen impressive growth in utility and adoption on Binance platforms. However, there remain some key milestones on the horizon that could further boost use cases and burn more tokens:
- Integration into metaverse and gaming ecosystems: BNB has major potential to become the currency of choice for virtual worlds, NFT games, and the metaverse. This would bring fresh demand and use cases.
- Mainstream merchant adoption: If Binance can push for BNB acceptance at online and retail merchants, this would vastly expand its role as a payment token while burning more coins through transaction fees.
- Leveraging AI to expand DeFi offerings: Binance plans to use artificial intelligence to accelerate innovation of new DeFi products. More DeFi built on BNB Chain means greater need for BNB tokens.
- Supporting emerging blockchains: Allowing younger blockchains to integrate with BNB Chain would grow the wider BNB ecosystem and bring more activity onto the network.
With the right execution, BNB could be bound for mainstream adoption on par with Ethereum. Burning mechanisms would ensure token scarcity rises in parallel with demand growth. This may ultimately turn BNB into the leading utility asset in the blockchain economy.