People often misunderstand or overlook the economics of a token. However, it is extremely important to predict the future of a token. In order to properly understand the economics of a token, you have to look at two significant factors. These two factors are the lifeline of cryptocurrency and crypto projects. In fact, cryptocurrencies often manipulate their market capitalization by leveraging these two points. In the previous article, we discussed the first point, token minting. This article discusses token burning and its impact on the economics of a crypto project.

Token Economics: What is Token Burning?

Token burning is a part of the tokenomics of a project, which refers to when a token is destroyed from existence. This does not mean that these funds become untraceable. In fact, when using the blockchain, all transactions that ever happened will remain. The aforementioned "burn", simply represents a token that is no longer accessible by anyone as it is in a new wallet. Typically, this wallet address is; 0x000000000000000000000000000000000000dEaD. This wallet address is commonly seen across all EVM-compatible chains. The reason is if someone attempts to get access to this wallet, every 0 before the dEaD makes it more and more difficult to acquire the aforementioned keys.

The act of burning a token increases the price of a certain digital asset due to a supply shock & decrease. Furthermore, more and more people rush to purchase this particular crypto-asset as the supply shock and price increase make it more desirable.

Therefore, a balanced tokenomic system is one that factors in newly created tokens (to account for growth), and token burning (when in a recessive market). A project that has the capacity to maintain these two points, is a sustainably growing one. Lastly, sustainable projects have an edge over regular ones, particularly when it comes to the bear market.

Using Tokenomics to your advantage:

The calculation and usage of tokenomics can be a tricky venture. For this purpose, we have decided to create a series to help project developers create strong sustainable projects. If you want to learn more about keeping a project sustainable through tokenomics, check out the next article in this series. Working on sustainability is a core factor in successful blockchain projects. Actually, that's incorrect, but a sustainable project is a core factor in the longevity of a project's survival. Therefore, a balanced token burning and minting mechanism is quintessential to a long-lasting crypto project.