Most people in crypto incorrectly assume that destroying tokens automatically equates to a higher token price. After all, supply and demand, amirite? If there is less supply the price should go up, yeah? Hm... no that is not always the case.
Take a liquidity pool for example.
This is the case I'm looking at right now on Magitek. Say we have a small exit-liquidity pool paired to the governance token. Hive, or a derivative of it (FIRE), is paired to the governance token MANA. What happens if we allow FIRE tokens to be burned to quote, "pump the price"? What happens?
Well... all that happens is that FIRE gets extracted from the LP and burned for whatever reward is being offered. In other words, all that happens is that FIRE tokens are extracted from the LP and the governance token loses value because it requires more governance tokens to attain the same amount of exit liquidity. There is no benefit in this case. Extracting liquidity from the market is not helpful because FIRE tokens are pegged to HIVE. OOPS!
There are other examples as well.
What would happen if a crypto network was extremely divided and then one side came into power and simply destroyed all the tokens of the other side? This is a token burn as well, but it's also theft and permanently tarnishes the reputation of the network. Just because a massive amount of tokens got burned doesn't mean value is going to go up.
I suppose what I'm saying here at the base-case is that nobody is paying attention to the other side of the equation. Yes, lowering supply can increase the token price, but it can also lower demand more than the supply was lowered, resulting in a net loss. This is why reducing yields on AMM yield farming networks is dangerous. Sure, you lowered inflation, that's great. But you also just massively reduced the reward, incentive, and demand to buy and stake the token in the first place.
Reminder: Inflation is crypto's killer function.
The ability to allocate inflation exactly where we want it based on uncrackable intelligent code reinforced by hundreds/thousands of servers around the world is the entire value proposition of crypto. The only reason to not allocate inflation to a certain area is if allocating inflation to that area becomes a net loss to the network. It isn't that difficult to allocate inflation to places where more value is created (demand) than dilution generated (supply).
On a very real fundamental level, burning tokens is an artificial scarcity tactic derived from the legacy economy that will eventually be proven as a toxic way of attempting to bring value to the network. We don't want artificial manufactured value for the current user base, we want growth and a fair distribution to everyone that partakes in the system.
Crypto is all about a wide distribution of not only tokens, but also power. We accomplish this by embracing an abundance mindset; not one rooted in corporate artificial scarcity. We can't achieve these goals with token burns. This should be obvious to people in crypto, but it simply isn't.
Conclusion
Too many people in crypto are scrambling for any way possible to make number go up. Classic example of how greed ruins everything. Think about it. How is everyone in the world going to get their fair share of a token if the network is constantly destroying it? The answer is: "Who cares!?! Number go up!" Terrible terrible answer. Do better.
Posted Using LeoFinance Beta
