In order to understand the need and purpose of SOUL token burning, one needs to have the basic knowledge of what cryptocurrency burning is all about and why it happens. Let’s dig in.
What is Token Burning?
Burning a coin or token simply refers to the act of removing an active token from the circulating supply and sending it to an inaccessible or unusable account. In other words, the tokens that are burnt once are no longer active and cannot be accessed or used again.
For instance, if 10% of a particular coin’s 1000 circulating supply is burned, its new total circulation will be only 900. The 100 tokens that are already burnt cannot be reused again.
What is the purpose of Token Burn?
The major purpose of burning a token is to reduce its supply. Because of the scarce circulating supply of the token, its demand, and therefore value, is expected to increase or at least remain stable.
How this works
In order to make a certain number of tokens unusable and inaccessible, developers first have to acquire these tokens, i.e. they buy back the tokens from their original owners/holders and then send them to addresses that are no longer in use or have their private keys lost. This way, the tokens become unusable and are no longer considered a part of the circulating supply.
Token Burning Benefits for Soul Token
SOUL token is a charity-focused cryptocurrency that aims to help those in need. To do this, the project team will allocate a fixed number of tokens (~5 billion) to make donations every once in a while. As this happens, these tokens will be removed from the circulating supply, which creates a possibility for the price to drop when a huge number of tokens are removed at once from the supply. To avoid this, the team will also burn an equal number of SOUL tokens.
“Burns will happen equally with donations.”
Not only token burns will help reduce the inflation rate for the SOUL token, but also it will help boost the price by creating a scarcity in the market. As fewer tokens are available but the demand is the same, the token price is likely to increase or, at least, remain stable.
Our main purpose for ‘burning’ tokens is to avoid sudden drops in the SOUL token price when we remove tokens from the supply for donations.
Automatic Liquidity Pool is another way for the SOUL team to maintain the token price and avoid sudden drops. The 5% fee coming from SOUL token transactions is automatically added to the liquidity pool, which helps maintain ample liquidity to handle even large sell transactions.
To know more, visit https://soultoken.fund/