Floki Won’t Actually Burn $115M Worth of Tokens: Here’s Why
On Tuesday, the Floki community voted in favor of taking down the token’s major bridge. This bridge allows users to move BNB Chain-based Floki to the Ethereum blockchain and vice versa. Usually, most blockchains are incompatible, and a bridge is needed to move tokens from one chain to another.
Floki seeks to burn about 4.5 trillion tokens in order to deconstruct the bridge. With Floki currently priced at $0.00002421, those tokens would be worth $115 million on the open market. So does it mean $115 million in Floki tokens is getting burned? The answer is no, and here is why.
The Floki Bridge Burn
In late June 2021, when the cross bridge launched, it was meant to mint an equal quantity of BNB chain-based Floki tokens. That is ten trillion Floki tokens on Ethereum and a similar amount on the BNB chain.
To get the bridge functioning, it required to be ‘seeded’ with initial liquidity to make sure that transactions could move from the Ethereum chain to the BNB chain. As a result, Floki deposited over 550 billion tokens from the treasury into this bridge.
The bridge arrangement requires Floki users migrating their tokens to the BNB chain to first send their Ethereum-based Floki to the bridge, which means removing them from circulation. In return, they will receive an equal amount on the BNB chain. The same is true when Floki moves to the Ethereum chain.
The above details might easily suggest that Floki’s total supply is 20 trillion. However, considering how the bridge is designed, it means that each deposited token is effectively being removed from circulation and not crossing the bridge but getting mirrored on the other blockchain.
It is worth noting that the 550 billion tokens used in seeding the bridge are not part of Floki’s total circulating supply of about 9.4 trillion tokens, according to CoinGecko. Further, the two smart contracts of the bridge show 3.9 trillion and 1.7 trillion tokens locked on the BNB chain and Ethereum, respectively.
These 5.6 trillion tokens are also not included in Floki’s circulating supply; therefore, they do not affect Floki’s price unless they are moved out of the bridge, maybe through hacks. The bridge hacks have been on the rise in recent months.
Why the Floki Burn?
In case a hacker manages to access the 5.6 trillion tokens in the bridge, the total supply of Floki will cross the ten trillion mark, thus ruining the entire tokenomics of this project. Also, the exploit would cause the token’s price to depreciate significantly.
Therefore, as a precaution, on February 9, the Floki DAO will seek to burn about 4.5 trillion tokens in the bridge. The 550 billion tokens used in seeding the bridge will be channeled to the treasury. That said, Floki’s total circulating supply stays unchanged.
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