The token burning model that involves buying and burning tokens (in the case of the crypto world, in the form of VVV coin) is being used by more and more people, especially considering the fact that at least one expert on Bankless states that token burning is fundamental for increasing the value and attractiveness of tokens to investors.
How the Buy and Burn Token Model Works
The buy and burn model of a token is a technique through which companies use their revenues to buy back their tokens on the market and remove them from circulation. According to the Bankless host, when there is a decrease in token supply, scarcity increases, thus raising the value of a token. The success of this model depends on the ability of a project to generate revenue because in order to buy back tokens, funds must exist.
Leading Crypto Projects Embracing the Model
Many successful cryptocurrency projects have been using the buy and burn token system to maximize the benefits for their users. The first to utilize it was MakerDAO, which was the first to use this method and had a lot of success with it. The latest project that started burning tokens is called VVV, which claimed to have a “vision of growth” when they announced the burning of tokens.
Some projects went even further using this approach, like Lit, which burns 80% of all the fees and therefore brings value to users.
Implications for Token Holders and the Broader Market
Token holders are the main beneficiaries of the buy and burn token model because they are able to sell their assets at a higher price and share in the revenue from the project. Because the interests of the project are aligned with those of investors, this model makes it possible to create better community engagement and commitment from long-term members. The buy and burn model will become even more widely used because successful case studies such as MakerDAO, VVV, Lit, and JTO demonstrate that it works.
One thing to keep in mind is that Bankless mentions the need for constant revenue generation in order for the buy and burn model to be sustainable and successful, which means other projects that are not able to generate enough revenue won’t be able to conduct successful buybacks and burns.
Source — Bankless: https://www.youtube.com/watch?v=QKilKt3lj8U