There’s no denying that the global macroeconomic picture has continued to deteriorate rapidly over the past year, thanks in large part to the Federal Reserve’s quantitative easing measures (such as interest rate hikes). This has caused liquidity to dry up globally, affecting a whole range of markets including stocks, commodities and crypto.
To that point, over the past few weeks, several crypto projects have gotten their hands on it to help spur the price action of their favorite assets. For example, community members associated with the popular decentralized exchange protocol Bancor recently voted down a critical proposal that reduces the total supply of its native cryptocurrency, the Bancor Network Token (BNT), by burning BNT to help strengthen potential asset price action.
In its simplest sense, a token burn can be thought of as a mechanism that allows for the removal of a fixed number of coins from a currency’s circulating supply. This helps to improve the supply-demand relationship of an asset, thus allowing for a possible appreciation of its value at a later stage. Many popular crypto exchanges and projects, including KuCoin, Binance, Gate.io, and MEXC Global, engage in these activities regularly.
What is changing and how will it affect Bancor?
Earlier this year, in June, Bancor suspended the distribution of its BNT token, leading to the suspension of its popular impermanent loss protection (ILP) program. Since then, the project has been rebuilding its digital infrastructure, with particular emphasis on redefining its tokenomics in order to mitigate any inflationary risk associated with BNT, as well as restoring its token reserves.
As mentioned above, a couple of days ago, 1M BNT was successfully burned after being brought and collected in the Bancor v3 vault. The one-time BNT burn, that was votedof the protocol’s DAO participants, was realized, with 0.5% of the coin’s circulating supply now irrevocably destroyed. These burning efforts are quite beneficial to the future health of the protocol as they allow the value of BNT to increase relative to the listed tokens while naturally replenishing the platform’s TKN reserves.
Additionally, a write-down of 21 million BNT is also being discussed as part of Bancor’s migration from v2.1 to v3. To be specific, the associated POL BNT that could be removed from the deck is around approx. $10.3 million or 21.9 million BNT, which is just over 10% of the circulating supply of BNT (200 million).
Finally, it’s also worth noting that the minting of BNT has been paused, a move that has added more deflationary pressure on the asset. Not only that, to counter the inflationary risks associated with the currency, Bancor’s governing community has approved a proposal to suspend BNT’s liquidity mining rewards.
vBNT continues to burn
Another important step Bancor has taken to strengthen its economic framework is to increase the rate at which domestic fees are used to buy BNT and burn vBNT. vBNT is Bancor’s governance token issued to users participating in BNT in Bancor’s various liquidity pools.
In this regard, it is worth noting that currently 90% of Bancor v3 fees are being used to acquire new BNTs, while 100% of Bancor v2.1 fees are being used to purchase BNTs and record vBNTs. The total amount of vBNT burned throughout 2022 has grown exponentially with each passing month, currently nearing $2.8 million.
The BNT token is currently trading around $0.4. However, at the height of the 2021 bull run, the asset rose to an all-time high of $9. Finally, the total circulating supply of BNT currently stands at 198.85 million, down from more than 240 million at the beginning of the year.