Token Burn

Token burning permanently removes tokens from circulation by sending them to an inaccessible address with no private key (a 'burn address'), reducing total supply and creating deflationary pressure. Burns can be manual (protocol treasury burning tokens) or automatic (programmatic burns on each transaction).

Ethereum implements burning through EIP-1559, where a portion of every transaction's base fee is burned rather than going to validators. During high network activity, Ethereum can burn more ETH than it emits, making it deflationary. Buyback-and-burn mechanisms use protocol revenue to purchase tokens from the open market and burn them, creating persistent buy pressure while reducing supply.

The investment thesis: reduced supply with constant or growing demand increases per-token value. However, burns only affect value if the demand side holds steady. Burning 50% of supply means nothing if demand drops 50%. The effectiveness depends on burn rate relative to emission rate, burning 1% annually while emitting 5% still produces 4% inflation.

Some projects gamify burning with visible counters and milestones, though this is often marketing rather than meaningful value creation. True deflationary mechanics require sustainable burn rates exceeding new issuance.