Buyback and Burn Programs in Cryptocurrency: How They Work and Why They Matter

When a cryptocurrency project announces a buyback and burn, it’s not just marketing fluff. It’s a direct action to reduce the number of tokens in circulation - and if done right, it can change how people see the asset’s value. But not all burns are created equal. Some move markets. Others barely make a ripple. So what actually happens behind the scenes? And does burning tokens really make them more valuable?

How Buyback and Burn Actually Works

At its core, a buyback and burn program has two steps. First, the project uses its funds to buy its own tokens on the open market. Then, it sends those tokens to a special wallet address that can’t be accessed by anyone - a burn address. Once there, the tokens are gone forever. No one can spend them. No one can trade them. They’re erased from the active supply.

This isn’t magic. It’s basic economics: if fewer tokens exist and demand stays the same (or grows), each remaining token should be worth more. Binance started this trend in 2017 by committing to use 20% of its quarterly profits to buy back BNB and burn it. By early 2023, they’d done 22 burns, removing over 100 million BNB tokens - half of the original supply. Each burn was publicly recorded on the blockchain. Anyone could check it.

The burn address for BNB is 0x000000000000000000000000000000000000dEaD. It’s a known, immutable address. When tokens disappear into it, they’re gone for good. Blockchain explorers like BscScan show these addresses with zero balances, proving the tokens were destroyed, not moved around.

Ethereum’s Different Approach: Fee Burning

Not every burn comes from a company buying tokens. Ethereum changed the game in 2021 with EIP-1559. Instead of buying back ETH, it burns a portion of every transaction fee paid on the network. The more people use Ethereum, the more ETH gets destroyed. By 2025, over 3.5 million ETH - worth more than $10 billion - had been burned this way.

This is a smarter model for a protocol like Ethereum. It doesn’t rely on profits or corporate decisions. It’s automatic. Every time you swap tokens, stake ETH, or interact with a DeFi app, a little bit of ETH vanishes. It’s deflationary by design. And because it’s tied to real usage, it scales with demand. Unlike Binance’s quarterly burns, Ethereum’s burn happens continuously - and it’s impossible to manipulate.

Why Some Burns Work and Others Don’t

A burn announcement can spike a token’s price by 5-8% in the first 24 hours. But that’s often temporary. A 2022 study from the University of Cambridge found only 4 out of 15 major burn events had a statistically significant price impact beyond 30 days. Why? Because burning tokens doesn’t fix a broken product.

If a project has no real users, no utility, and no revenue, burning tokens is just a band-aid. People notice. Reddit users have called out projects that fake burns - transferring tokens between wallets they control instead of sending them to a burn address. One case in 2022 claimed to burn 50 million tokens, but on-chain analysis showed they were just moved, not destroyed.

The most successful burns are predictable, transparent, and tied to real business performance. Binance’s model works because it’s based on trading fees - a clear, measurable income stream. Every quarter, they burn tokens based on how much they earned. That creates trust. Users know the burn isn’t random. It’s connected to what the company actually does.

What the Experts Say

Some analysts think burn programs are brilliant. John Pfeffer, founder of Pfeffer Capital, called Binance’s 20% profit allocation a “disciplined approach that connects token value to business performance.” He’s right - when a project’s revenue grows, so does its burn. That’s a healthy feedback loop.

But others warn against it. Placeholder VC’s 2020 white paper argued that burning governance tokens - the kind that let holders vote on protocol changes - weakens the system. If you burn too many, you reduce the number of people who can influence the project. Chris Burniske, a partner there, put it simply: “Issuance is key to capitalization. Burning can get in the way of growing fundamental value.”

Crypto analyst Wendy O. noticed a pattern: burns cause short-term spikes, but prices usually revert to trend within 72 hours. That suggests the market is pricing in the burn before it happens. Traders buy ahead of the announcement, then sell after. The real value comes from what happens after the burn - not the event itself.

Market Impact and Real Numbers

By 2023, 39% of the top 200 cryptocurrencies had some form of token burning - up from just 12% in 2020. The total value of burned tokens exceeded $15 billion. BNB accounted for $6.2 billion of that. Ethereum’s fee burning added another $10.5 billion - but that’s not a buyback. It’s a protocol-level reduction.

Tokens with regular, predictable burns - like BNB - showed 15-20% less price volatility during market downturns, according to Krayon Digital’s 2023 report. That’s not because burns prevent crashes. It’s because they give traders something to anchor to. When the market drops, some investors see the next burn date as a potential floor - a reason to buy.

Trustpilot reviews of exchanges with burn programs averaged 4.2/5, compared to 3.8/5 for those without. Users specifically mentioned “confidence in tokenomics” as a reason to stick with them. That’s psychological, but powerful. In crypto, trust matters more than code.

Challenges and Risks

Setting up a burn program isn’t cheap. A basic system costs $15,000-$50,000 to build. Automated systems like Binance’s Auto-Burn cost over $200,000. You also need audits. Firms like CertiK and OpenZeppelin charge $5,000-$15,000 per burn to verify the process. Without that, no one believes you.

Regulators are watching. The SEC warned in 2022 that improper burn structures could be considered unregistered securities offerings. In March 2023, they took enforcement action against a project that falsely claimed to burn tokens. Now, proof of destruction is mandatory.

Timing matters too. Huobi burned tokens in Q3 2022, but bought 75% of them at prices 20% above the quarterly average. That’s inefficient. You burn more tokens if you buy low. Buying high means you’re wasting money.

The Future: Beyond Simple Burns

The next wave of tokenomics is moving past simple burning. Binance launched its “Burn Hub” in early 2023, combining quarterly profit-based burns with real-time fee burning. Now, 4,327 BNB are burned every day - not just quarterly.

Ethereum’s Dencun upgrade in late 2023 made fee burning even more efficient during high traffic. MakerDAO, a DeFi giant, tried something new: instead of burning MKR tokens, they redistributed them to stakers. That’s called “buyback-and-make.” It keeps supply low but rewards holders instead of just reducing tokens.

By 2025, Messari predicts 65% of major cryptocurrencies will use some kind of supply reduction mechanism. But the trend is shifting. It’s not about burning for the sake of burning. It’s about aligning token destruction with real usage, revenue, and user incentives.

What You Should Look For

If you’re evaluating a crypto project with a burn program, ask these questions:

• Is the burn tied to real revenue (like trading fees or profits), or is it random?
• Is the burn schedule predictable? Quarterly? Monthly? Daily?
• Can you verify the burns on-chain? Check the burn address yourself.
• Does the project have real usage? Are people actually using the token?
• Has it been audited by a reputable firm?

If the answer to most of these is yes, the burn is likely meaningful. If it’s just a press release with no proof, treat it like noise.

Final Thought

Buyback and burn programs aren’t a magic bullet. They won’t turn a dead project into a winner. But when used correctly - transparently, consistently, and tied to real value - they’re one of the most powerful tools in crypto tokenomics. They turn abstract ideas like “scarcity” into something you can see, track, and verify. In a space full of hype, that’s worth something.