HTX DAO recently burned approximately $19 million worth of HTX tokens. Now, that’s a pretty courageous move, and particularly given the crypto climate of late. Bitcoin's been playing seesaw, trading volumes are down, and everyone's a little on edge. In reality, is this great huge burn the conception of a genius, a masterclass as touted by some? Or are we missing the real thrust of the issue here?
Burn Baby Burn, But Why?
Let's be clear: a token burn is essentially a digital repurchase program. The goal? Reduce the circulating supply, which by basic tokenomics, would increase the value of each remaining token. It’s the crypto answer to an equities buyback. A business may choose to reinvest their profits in growing the company or to pay out that profit in dividends. By contrast, a DAO burns its tokens.
Is this a true redistribution of value as HTX DAO would have you believe? Perhaps. It's certainly eye-catching. They’re committing 50% of HTX exchange revenue towards these burns, carried out in a fully transparent manner via Sun.io. You can follow those transactions on-chain, and that’s a big transparency advantage, a big accountability advantage. They’ve since burned more than 60 trillion HTX tokens, worth more than $114 million! This amazing commitment is a tough act to follow.
This is where the surprising link comes into play. Think about the Weimar Republic. Hyperinflation had taken Germany over so severely that people burned cash for heat, as money was cheaper than buying firewood. Token burns are not an effective way to fight inflation. What’s motivating the burn is just as important as the burn promise. The value of HTX tokens is mostly based on the expectation of future burns. If so, we may be looking at a much more tenuous environment driven by deflationary speculation hype, rather than real utility and adoption of the HTX ecosystem. Are you investing in a project that will have actual long term use case and value, or merely wishing to cash in on the burnin-price pump.
Deflationary Dreams, Liquidity Nightmares?
Although a diminished supply can raise prices, it is no sure thing. In addition, a smaller float can make for poorer liquidity. When fewer tokens are available to trade, a large enough buy or sell order is very hard to execute. This lack of availability can really drive up the price. This leads to increased volatility and uncertainty making it hard for large scale investors to buy the dips or short the pops. Equity is rooted in our houses; Picture trying to sell your home in a community where nobody else is selling.
Furthermore, let's not ignore the elephant in the room: centralization. HTX DAO advocates for community governance and participatory democracy fervently. We can reasonably assume that a small number of people have in their possession most of the leftover tokens. Excessive dependence on token burns can unintentionally centralize power and wealth in the ecosystem. This is antithetical to the bottom-up, local, decentralized connective tissue that it aims to promote. Is this really a “People’s Exchange,” or just the latest incarnation of centralized control under the banner of a DAO?
Here's a question that should make you stop and think: how does this burn strategy compare to, say, quantitative tightening by a central bank? The answer is yes, of course the Fed shrinks the money supply to fight inflation. They don't just destroy the money. By pumping savings into the bond market, selling off certain assets, increasing competition for funds and otherwise controlling the economy. But is HTX DAO’s approach a smart form of monetary policy, or a blunt instrument?
Governance Theater or Genuine Power Shift?
HTX DAO are making great strides on governance, launching their $HTX Holding-Based Voting Tool and successfully passing initial proposals. They're even planning vote-to-earn incentives. This sounds great. Moving from a tightly controlled, centralized decision-making process to a decentralized, user-governed ecosystem is an admirable aspiration.
Let's be realistic. How many of those $HTX holders are engaging in these votes in real life? How informed are they about the proposals? Or are they just parroting approval of decisions made by a small handful of stakeholders? The success of any DAO depends on good faith participation and informed decision making, rather than the mere appearance of decentralization. In reality, though, most token holders are simply HODLing, as the crypto community likes to say. In this world, governance is stripped of its meaning and is relegated to window dressing.
In short HTX DAO’s $19 million token burn is an interesting experiment in deflationary finance. It's a bold move that could pay off handsomely for token holders, but it's fraught with potential risks. Before you get caught up in the craze, dig deeper into the basics. Challenge the narratives and remember that nothing is certain in the crypto wild west. Don’t allow the scorching fires of enthusiasm to prevent you from seeing the burning fields ahead.
