Most people in crypto incorrectly assume that destroying tokens automatically equates to a higher token price. After all, supply and demand, amirite? If there is less supply the price should go up, yeah? Hm... no that is not always the case.
Take a liquidity pool for example.
This is the case I'm looking at right now on Magitek. Say we have a small exit-liquidity pool paired to the governance token. Hive, or a derivative of it (FIRE), is paired to the governance token MANA. What happens if we allow FIRE tokens to be burned to quote, "pump the price"? What happens?
Well... all that happens is that FIRE gets extracted from the LP and burned for whatever reward is being offered. In other words, all that happens is that FIRE tokens are extracted from the LP and the governance token loses value because it requires more governance tokens to attain the same amount of exit liquidity. There is no benefit in this case. Extracting liquidity from the market is not helpful because FIRE tokens are pegged to HIVE. OOPS!
There are other examples as well.
What would happen if a crypto network was extremely divided and then one side came into power and simply destroyed all the tokens of the other side? This is a token burn as well, but it's also theft and permanently tarnishes the reputation of the network. Just because a massive amount of tokens got burned doesn't mean value is going to go up.
I suppose what I'm saying here at the base-case is that nobody is paying attention to the other side of the equation. Yes, lowering supply can increase the token price, but it can also lower demand more than the supply was lowered, resulting in a net loss. This is why reducing yields on AMM yield farming networks is dangerous. Sure, you lowered inflation, that's great. But you also just massively reduced the reward, incentive, and demand to buy and stake the token in the first place.
Reminder: Inflation is crypto's killer function.
The ability to allocate inflation exactly where we want it based on uncrackable intelligent code reinforced by hundreds/thousands of servers around the world is the entire value proposition of crypto. The only reason to not allocate inflation to a certain area is if allocating inflation to that area becomes a net loss to the network. It isn't that difficult to allocate inflation to places where more value is created (demand) than dilution generated (supply).
On a very real fundamental level, burning tokens is an artificial scarcity tactic derived from the legacy economy that will eventually be proven as a toxic way of attempting to bring value to the network. We don't want artificial manufactured value for the current user base, we want growth and a fair distribution to everyone that partakes in the system.
Crypto is all about a wide distribution of not only tokens, but also power. We accomplish this by embracing an abundance mindset; not one rooted in corporate artificial scarcity. We can't achieve these goals with token burns. This should be obvious to people in crypto, but it simply isn't.
Conclusion
Too many people in crypto are scrambling for any way possible to make number go up. Classic example of how greed ruins everything. Think about it. How is everyone in the world going to get their fair share of a token if the network is constantly destroying it? The answer is: "Who cares!?! Number go up!" Terrible terrible answer. Do better.
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If they are burnt for no reason, then this makes sense I guess. But if they are burnt in some sort of utility or value proposition, then that surely must result in an increase in value?
I could not imagine that there is a correct and incorrect burning of crypto coins) ... when postage stamps are taken out of circulation, their cancellation, in any case, increases the value of clean postage stamps.
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Besides collection value, I don't see much point in those stamps. Utility-wise, I don't see why you wouldn't just get a cheaper one? If the prices go up that much, wouldn't an alternative just be used instead?
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On this, I cannot tell you anything, because there is some hope, but I would not rely on it as a foundation.
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This is the problem.
Do you really think it's appropriate to compare a collector's item created by a centralized agent... with a decentralized open source product that anyone in the world can clone? Why would the economics of these two things be comparable in any way shape or form? They are completely different systems. The problem is that everyone conflates the systems an assumes all the principals from one translate to the other.
Postage stamp cancellation is the great-great-grandfather of burning crypto coins in order to increase the value of the remaining clean circulation. The systems are different, and the principles of decentralized systems are based on something, they did not appear out of nothing, at least on the experience of past generations.
I want to add that postage stamps are not just a collectible, they are only postage stamps canceled on order, but a strict accountability payment document that is printed by mints.
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Can you see a good reason to take money out of your pocket and burn it?
Please share that with us.
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very good point.
I don't think anyone would have an answer for this unless they are a psychopath.
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@themarkymark burns the stem geek tokens and they are one of the strongest tokens on hive-engine
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If the network gives you a utilitarian outcome from doing so. Eg. if you could burn Hive for a temporary boost to RC's so that you can make more transactions, as one simple example.
this one wins the internet today.
Okay so you burn the tokens to mint some NFTs, and the NFTs end up being worthless. Now your userbase is pissed and a percentage of them ragequit. There are many ways to mess up a token burn. The burn has to create more value then it destroys. That's what people don't get. They assume it never destroys any value.
Most NFTs don't really have value right now anyways. So I don't know why people just buy into it when most of it doesn't have much utility. It sounds like most of them are just fixated on price.
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That makes sense. Appreciate your help to understand Tokenomics 101 :)
I envy you .... You understand this.
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To be honest, it's too confusing for me, apparently, to be able to count quickly, this is not all mathematics)
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Thanks for this... I always think Burning equals Mooning :)
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Be careful this will get you kicked out of the Bitcoin Maxis fan club.
You read my mind with this post. It is amazing how we can be on the same wavelength. I wrote down this concept as my post for tonight. Perhaps I will wait a few days to allow this one to settle in.
Either way, you nailed it. Burning money is a stupid idea. Even if you frame most crypto akin to stock, do we not see companies do capital raises by selling shares. Of course, if the company is shit, it does not good, same as with shitty token projects.
However, if Amazon or Tesla did an equity raise, nobody would bat an eye since those companies are growing and expanding.
Projects need to start incorporating business building ideas. That is what leads to success.
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Quite some ETH has been burned and the numbers are not that much up... Where's $15,000 ETH sir?
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Many will say .. Thank God that, while we do not see a price of $ 15,000, there is an opportunity to stock up on coins.
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Those who make money understand that. The masses do not.
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It is akin to a stock buyback in hopes of pumping the price. Sure it can help in the short term but if the company is garbage and not increasing its value, it ends up collapsing anyway.
Ethereum is obviously seeing the market affect its price but the bottom line is the burns didnt do a lot to enhance what is taking place onchain.
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Companies are doing that a lot and especially the bank stocks. Is getting punished by the Fed to stop buybacks a big enough punishment for them?
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Yes, I am one of those people who thought that burning coins was a great benefit...you destroyed my faith).
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You faith is still strong. Just need to redirect it.
Just like when we had faith a fat guy in a red suit showed up each December.
Then we realized he was really just a drunk at the mall.
Faith still there had to be redirected. So now I have no faith in Santa Claus but I have faith in the power of Jack Daniels.
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Yes, I did not think about Santa, you very accurately noticed this nuance) ... this needs to be dealt with without haste, meaningfully.
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In gaming we have what is called "money sinks", they usually work as ways to balance out inflation.
They give value to a way by which we spend money out of the system and it usually is monitored to see if the same money that comes in also goes out, keeping in mind that
Hive tried to copy games and let's be reminded that games are not perfect per happened but the theory behind them theoretically is, games especially nowadays are made with developer and publisher profit in mind sadly.
I've played WOW for 10,000 hours and gamed the auction house with mods like TradeSkillMaster (TSM),
so I know a lot about gaming economics.
Keep that in mind when reading this post, because I still wrote it.
I used to play WoW a lot and playing using TSM, money sinks may be something many in this platform are unfamiliar with, the exchange of certain value compared to "burning" (but people still getting value back), good to know that you were actively playing,
I mostly write about philosophy, art and gaming, sorry if anything, relatively new here,
I love games and one of my Favorite Game's Favorite Class as a Profile Picture,
oh and Hey how is it going? :D
The aim of most individuals in Crypto is to make profit and achieve success but despite that as well requires we to see progress occuring in the crypto world to benefit from it.
Yes, it’s sad to look at non-depressive coins that cause a feeling of longing)
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We live in a selfish world...who can you blame?
Yeah, opportunities do come... yes they do.
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Pasting this paragraph to serve as my reference to remind me of the logic behind the relationship between token burns and demand.
Inflation + code + servers = value
Two entirely different sets of presuppositions. One is based on abundance and the other on scarcity. I am now getting what I first heard from taskmaster about the suitableness of this idea of abundance in digital space.
Again, a great way to capture the value proposition of cryptocurrency in understandable statements. It's nice to see how token and power distribution are related to this idea of abundance.
The above four quoted paragraphs capture for me the entire argument of the article. I will be needing this for review since I am still in the process of digesting these new ideas.
Thanks!
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From a logical point of view... token burning can ideally increase the value of a token if the demand remains pretty much the same as before. So with fewer tokens, and the SAME demand, sell orders get filled quickly than before, so that's way it can grows. But like you said this is not a absolute rule.
Stay well bye :)
Okay, so what happens when you burn a bunch of tokens, and then demand goes up?
Yeah sure!! 100% with you. Indeed i say ideally... reality works different ;)
And yeah in the long run, less tokens could traslate into less adoption? what do you reckon?
I think the strongest networks will allocate inflation to the right places and also have token burns that generate income as well. At the end of the day inflation is provided to anyone that provably brings value to the network. The idea is that more value is provided by the user than is extracted from the network. Tokens burns, when done well, will also work nicely. But just assuming that all token burns are a good idea is not a smart strategy.
Your post (and image) reminded me of a similar post I wrote two years ago when people wanted to burn the pre-mine. It just never made sense to me.
https://peakd.com/hive-173737/@sepracore/burning-the-ninjamined-stake-would-be-lighting-fire-to-usd30-000-000-in-market-cap-let-s-talk-about-it
This isn’t exactly related to your post, but my idea back then was to just go ahead and print the next X number of years of Hive inflation and put it into a distribution account that no one holds the keys to. Inflation would then be distributed from that account. The net result of how much Hive would be in technical circulation would be the same as our current model, but Hive’s market cap would sky rocket with minor market moves because this accounts Hive would be part of that calculation. This would allow people to be able to say, “Hive is a top X” blockchain, which does matter to some people more than others.
I don’t think we will actually do it or should but it was an interesting thought experiment.
I was one of those people who wanted to burn the premine.
Burning the premine isn't about destroying tokens, it's about taking power away from the elite.
All of the value on Hive is stored in liquidity pools.
The coins in the @hive.fund are vapor if we don't have exit liquidity to actually sell them.
The risk of allocating 80M tokens to "development" seemed like a huge risk.
It still is a huge risk but it seems like it's worth it (or at least a wash).
Haha. :)
indeed
I agree with you and burning the tokens itself doesn't do much for the network besides pump prices up temporarily. However, it is true that the supply does constantly grow so there still has to be some value the network has to add for it to stay at the same price.
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But inflating it surely lowers the price? If we would raise BTC supply to 42 million all of a sudden, it would have to tank no? But I guess you would say that it would long term create more value because there is greater distribution?
That is exactly the opposite of what I've been saying for months.
Printing money can easily have more value than the dilution ratio.
Who is getting the money?
What is the value proposition?
How is this new distribution a fair one?
Bitcoin has built a brand and culture based on the 21M token hardcap.
Increasing the supply to 42 million would destroy the brand they've created.
That is a terrible example.
Actually it's the perfect example to support your own bias.
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I don’t still understand why you will just destroy money even though projects like bnb keep burning more money all the time. I don’t believe is the best thing to do
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Burn luna, sure it will fix things :V
Burning does not help at all when you're still printing, and besides all, "fake scarcity" does not solve the real issue: the lack of value behind a token.
Let's take Luna for example, it used to "fix" a problem, to be useful, and it had a system to avoid being abused, it had... like past tense, the Shet went down and all of it hit the fan and made a complete mess over everyone, a Ducking river of blood... And all because it no longer had a USE, it became a luxury instead of a commodity.
Crypto are not necessary, they are modern commodities, something to replace the already corrupted and useless banking system, but somehow, someday, it became about "BEING" that same system, and people found the ways, to imitate banking with stacking(Long term savings), governance and other things that just imitated the old ways.
So not long after it came... We started a pseudo stock market on the cripto exchanges, to the point we all believe the thing that worked on the stock, will work on the tokens, but gotta say something a lot of people will call me crazy for saying: Is not.
Stock market in fact doesn't work properly, is a patch up economy, something derived from the chaos, and imitating it is no use, if Luna token get "fused" in the new luna, and 5 luna tokens become 1 lunextoken2, it will still be 5 luna anyway, just a new name... These methods that resemblance the stock market are useless. Because all these are the sins we were trying to escape from in first place...
Anyway, the hell if I know, I'm not an economist, heck, I don't even have enough hive presence to be able to speak up about it.
A 3 minute reading time, bro are you ok?
Hey, you cleared up a misconception I had, but I also have another question.
What if 60% of the circulating supply was blocked forever in an account from which nothing can ever be withdrawn, would that help?
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It's hard to imagine that people think it's a simple as burning tokens.
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