What is token burn?

A token burn permanently removes tokens from supply, usually by sending them to an address where they can never be recovered. It is done to offset new issuance, to reduce supply, or as part of a fee. It matters because a smaller supply, for the same demand, means each remaining token represents a larger share of the whole.

How it works

Burns can be one-off events or built into the system, for example where a part of every fee is burned. Total supply falls by the burned amount, and circulating supply falls with it. Holders' percentage share rises, as the same holdings are now a bigger fraction of a smaller total.

There is a trade-off: burning does not by itself create value, it only works if demand holds up. A burn funded by revenue is different from one funded by tokens the project would have had to sell or spend. Burn rules that depend on activity create a feedback loop, since more usage burns more, which makes supply scarcer, which may attract more users.

Example

Say supply is 100 million and a holder owns 1 million, a 1% share. The system burns 5% of supply, 5 million tokens. Supply is now 95 million, and the holder's 1 million is 1.05% of it. If emissions add 3 million new tokens in the same period, net supply change is −2 million, so the burn offsets most of the new issuance. These are illustrative numbers.

How to model it in Machinations

Use a Source for emissions into a supply Pool, and a Drain that removes tokens as the burn. Link the Drain's rate to a Register for fee volume with a state connection, and set the burn share as a Lever. Chart the Pool and the net change. Play and raise the burn Lever to find the level at which supply starts to shrink.