Burn mechanism

Token Burning

Token burning is a mechanism to permanently remove a certain number of tokens from circulation. It is typically implemented to reduce the total supply of a token and potentially increase its value over time. Regarding BaseBank's xBANK tokens, 60% of penalized xBANK tokens are subject to token burning. When users opt for a vesting duration lower than the maximum allowed during the redemption process, the conversion ratio between xBANK and $BANK becomes less than 1:1. If any remaining xBANK tokens are not redeemed, they are considered a Fast Redeem Penalty. To enforce accountability and create scarcity, 60% of the penalized xBANK tokens are permanently removed from circulation through the token-burning process.

Example: Let's assume a user decides to redeem 1000 xBANK tokens for LIN with a vesting duration less than the maximum allowed. Due to the chosen vesting duration, the conversion ratio between xLIN and LIN is 0.9:1. After the redemption process, the user is left with 100 xLIN tokens that were not redeemed. Since these remaining xLIN tokens are considered a Fast Redeem Penalty, 60% of them, which amounts to 60 xLIN tokens, will be burned. As a result, these 60 xLIN tokens are permanently removed from circulation, reducing the total supply of xLIN tokens.

Supply Reduction

Token burning through the penalization of xLIN tokens reduces the overall supply of xLIN tokens in circulation. The reduction of xLIN total supply means that the LIN token total supply is also reduced. This led to the deflation of the LIN economy. By decreasing the total supply, the burn mechanism creates scarcity, potentially increasing the value of the remaining LIN tokens over time. Reducing supply can also help maintain a healthier token economy, preventing excessive inflation and ensuring a better balance between supply and demand.

Value Appreciation

By reducing the total supply of LIN tokens, the burn mechanism aims to increase their value over time. With a limited supply of tokens available, the scarcity created can generate higher demand and potential price appreciation. As the number of LIN tokens in circulation decreases due to the burning process, each remaining token represents a larger share of the total supply. This increased scarcity can lead to a higher perceived value and potentially benefit token holders and participants in the BaseBank ecosystem.