Despite receiving less attention from the community, $XRPburns have successfully taken over 11 million tokens out of supply, but just how effective are these burns?
The $XRPLedger (XRPL) has seen over 11 million $XRPtokens burned since its launch. However, compared to other assets, $XRPburns have received little attention, and opinions are divided on whether the current burn mechanism can substantially boost $XRP’s value in the future.
Data from XRPSCAN, the $XRPLedger explorer, shows that the network has burned 11.04 million $XRPto date. This amount has been accumulated through an erratic burn rate that destroys fractions of $XRPafter each ledger closure.
Burn mechanisms are often implemented by a network or a project’s community to induce a deflationary pattern for an asset. This is because a decrease in the supply of the asset can bolster its price movement.
However, the $XRPburn mechanism has a distinct purpose, which is to tackle spam transactions rather than specifically to support the asset’s price. To achieve this, the network charges a transaction fee for every $XRPtransaction and subsequently burns the fees collected.
Nevertheless, the network is engineered to reduce the amount of $XRPburned as the asset’s value increases. David Schwartz, CTO at Ripple, confirmed this in a tweet this month.
In response to a question about how long it would take to burn the maximum supply of 100 billion $XRP, Schwartz stated that he does not expect the $XRPsupply ever to be fully exhausted. He emphasized that as the supply decreases, the value of $XRPincreases, but the burn rate will decrease accordingly.
I don't think that would ever happen for two reasons:
1) Decreasing supply tends to cause increasing value with decreases the rate of burn.
2) While it's not easy to change core rules, it's hard to imagine the community not doing so if the system was actually breaking.— David "JoelKatz" Schwartz (@JoelKatz) April 8, 2023
Moreover, official documentationavailable on the $XRPLedger website states that at the current burn rate, it would take a minimum of 70,000 years to destroy all existing $XRPtokens.The documentation also notes that this burn mechanism makes $XRP“slightly deflationary.” A deflationary asset is an asset whose supply reduces over time or is limited.
$XRPRemains a Deflationary Asset
Although $XRPburns initially aimed to combat spam transactions, the mechanism also makes $XRPa deflationary asset, given that no new tokens can be minted. This has led some proponents to argue that the burn mechanism should naturally provide support for the value of $XRP.
A supporter of this view is the host of the “24HrsCrypto” YouTube channel. He recently predicted that the $XRPburn rate might rise to 10,000 tokens per day as volume expands.
36 days ago, #$XRP's total supply was 99,989,062,491 ????today the total supply is 99,988,964,530.897995 (97,961 $XRPburned and gone forever in 36 days) about 2800 a day – which goes perfectly with the below 24HR burn rate. That number will change to 5k, then 7K per 24HRS as the… https://t.co/NbOQWRPTMM
— ?????????????????????? (@24hrscrypto1) April 24, 2023
While some argue that $XRPburns may support the asset’s price, others believe the current burn rate may not achieve this. Instead, many proponents point to $XRP’s utility as a major factor driving its price action.
It remains to be seen how much of an impact an increased $XRPvolume would make as the burn rate increases. Meanwhile, $XRPis trading for $0.46, down 1.21% in the past 24 hours.