Token burning refers to the deliberate and permanent removal of a certain amount of cryptocurrency from circulation. This process effectively reduces the total supply of the digital asset. On the Solana blockchain, this involves sending tokens to an unrecoverable address, often referred to as a “burn address” or “null address,” rendering them inaccessible and permanently taking them out of the circulating supply. An example is a project team reducing the total supply of their governance token to increase its value based on scarcity.
The practice of diminishing the quantity of a digital asset is often implemented to potentially increase the value of the remaining tokens. A reduced supply, assuming consistent or increasing demand, can lead to upward price pressure. Historically, token burning has been employed as a deflationary mechanism, intended to reward long-term holders and create a more sustainable economic model for the asset in question. Certain governance models also utilize burning as a form of penalty or reward based on voting outcomes.
