Burn Rate
The pace at which tokens are permanently removed from circulating supply over a given period, whether through a protocol's built-in mechanism or deliberate buyback-and-burn activity.
Burn rate describes how quickly tokens are being permanently destroyed and removed from a token's circulating supply over a given time period, whether through an automatic protocol mechanism — such as a portion of transaction fees being burned — or through deliberate, discretionary buyback-and-burn activity funded by protocol revenue. A higher burn rate, all else equal, reduces circulating supply growth or even shrinks supply outright over time.
Burn rate is one input, alongside a token's emission schedule (see Kaavon's "Emission Schedule" glossary definition), to understanding a token's actual net supply trajectory: a token with a high issuance rate but an even higher burn rate can still be net deflationary overall, while a token burning only a small amount relative to its ongoing emissions remains net inflationary despite the burn mechanism's existence. Evaluating burn rate in isolation, without comparing it against the corresponding emission rate, can give a misleading picture of a token's actual supply dynamics.
Examples
- A token burning a larger amount through transaction-fee burns than it issues through staking rewards in a given period is net deflationary over that period.
- Comparing a token's burn rate without also looking at its emission schedule can give a misleading picture, since a large burn rate can still be outpaced by even larger new issuance.