What Is Token Burn and How Does It Work?
When an economic item is in short supply and its demand is increasing, its value goes up. Thats the law of supply and demand. Many crypto projects undertake token burn programs. Some do it regularly, while others do one-off burns. Crypto projects can follow different formats. However, the goal at the end of the day is to create scarcity of a token with the hope of raising its value. Token burn, explained  Token burning in cryptocurrency is the process of permanently removing existing tokens from circulation. It helps combat inflation risk and creates an environment for the value of the remaining tokens to appreciate. Article continues below advertisement  Source: istock  In a token burn, the project doing it acquires the tokens that it wants to remove from holders. It then sends those token to an account where they cant be used. Article continues below advertisement  Token burning can be compared to stock buyback in the equities market. Some companies repurchase their shares from investors from time to time. Apple has done it for a while, eBay does it, and Twitter agreed to do it as part of a settlement with hedge fund Elliott Management. In stocks, a buyback allows a company to reduce the number of its outstanding shares and the impact of that action can be felt in a variety of ways. First, it can boost the value of the remaining shares. Second, it can allow a company to improve its EPS even without making more profit. In cryptocurrencies, token burn is primarily about influencing token price. Article continues below advertisement