Burning ADA

in crypto •  2 years ago 

Cardano Creator Charles Hoskinson Clarifies Crypto Project’s Position on Burning ADA To Reduce Supply

I have to agree with Hoskinson here. It is hard to fathom the innumeracy of the coin-burners, but let me try.

Imagine you have 100m coins priced at $1 each; you burn 10m coins, so now have 90m coins... at $1 each. I think the mental error is thinking that those 90m coins are still worth $100m, but that's just wishful thinking.

Those coins that do burn successfully are those that behave like stocks, such as BNB; they burn just before a dividend, thereby increasing the percentage profit. That does work, but assumes there is some stash that is burnable.

Also, if the coin still has a minting rate, then burning some of the capital will also increase the APR value of that minting. None of which guarantees that the price will rise.

Now, if an asset has miscalculated its inflation rate, and it appears to be too high, then burning activity is a valid correction. This would become a kind of tax, whatever that activity might be, and has the advantage that it will depend on some meaningful activity taking place.

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