.
The Polygon (MATIC) network, known for its high scalability and low transaction fees, has implemented a token burn mechanism designed to reduce the circulating supply of its native MATIC token over time. This deflationary feature is integrated into the network through the implementation of EIP-1559, which was introduced in late 2021. This article will explore how MATIC burning works, its purpose, and some approximations regarding how much MATIC might be burned under different scenarios.
_______________________________
How MATIC Token Burning Works:
The token burn mechanism in the Polygon network is built on the principles of EIP-1559, a proposal that was originally implemented on Ethereum. It aims to make the token deflationary by burning a portion of transaction fees. Here’s a breakdown of how this process works:
1. Transaction Fees: Every time a user performs a transaction on the Polygon network (whether transferring MATIC tokens, interacting with decentralized applications (dApps), or using smart contracts), they pay a transaction fee in MATIC. These fees consist of a base fee and a priority fee.
2. Base Fee Burn: The base fee portion of the transaction fee is burned. This means it is removed permanently from circulation. The idea behind this is to reduce the overall supply of MATIC over time, which can make the token more scarce and potentially increase its value, assuming demand remains steady.
3. Priority Fee: The priority fee goes to the validators who process and validate the transaction, and is not burned. This is similar to a tip, rewarding the validators for their work.
4. Accumulation and Burn Process: When the base fee from transactions accumulates to a significant amount (usually above 25,000 MATIC), the Polygon network initiates the burn process. This burn is a multi-step process that first happens on the Polygon network and then finalizes on Ethereum, as part of Polygon’s interaction with Ethereum’s mainnet.
___________________________
Purpose of Token Burning
The primary goal of token burning is to create a deflationary pressure on the MATIC supply. In the cryptocurrency world, a deflationary system can be beneficial for long-term holders as it potentially leads to scarcity. When the supply decreases while demand remains constant or grows, the value of each token could rise.
By periodically reducing the circulating supply, Polygon aims to:
Control inflation: Reducing the number of tokens in circulation can help manage inflation.
Increase scarcity: With fewer tokens in circulation, MATIC can become a more scarce asset, which can drive demand.
Enhance long-term value: As Polygon’s ecosystem grows, the continuous burn may contribute to the appreciation of the MATIC token.
____________________________
Approximate Token Burning: How Much MATIC Is Burned?
To better understand the potential impact of Polygon’s burning mechanism, we can look at a few projections based on different burn rates.
Burn Rate at 0.27% per Year
The current annual burn rate of MATIC is estimated at 0.27% of the total supply. With a maximum supply of 10 billion MATIC, this means approximately:
Annual Burn = 0.27% of 10 billion = 27 million MATIC burned per year.
Time to Burn 1 Billion MATIC:
At this rate, it would take around 37 years to burn 1 billion MATIC tokens. This is because:
1 billion MATIC ÷ 27 million MATIC/year ≈ 37 years.
Potential Burn Rate at 1% per Year
If the transaction volume on the Polygon network increases, leading to a higher burn rate of 1%, the burn rate would increase significantly:
Annual Burn = 1% of 10 billion = 100 million MATIC burned per year.
Time to Burn 1 Billion MATIC:
At this higher burn rate, it would only take about 10 years to burn 1 billion MATIC tokens:
1 billion MATIC ÷ 100 million MATIC/year = 10 years.
This more aggressive burn would accelerate the deflationary effect on MATIC, creating a more noticeable reduction in supply over a shorter period.
_________________________
Summary of MATIC Token Burning Projections
At a 0.27% burn rate, approximately 27 million MATIC are burned annually. It would take around 37 years to burn 1 billion MATIC tokens.
At a 1% burn rate, approximately 100 million MATIC are burned annually. This would reduce the time to burn 1 billion MATIC to around 10 years.
These projections depend heavily on the transaction volume and the continued use of the Polygon network, both of which are likely to grow as Polygon scales and attracts more decentralized applications and users.
__________________________
Conclusion
The MATIC burn mechanism is an essential part of Polygon’s strategy to reduce token supply over time, supporting its deflationary model. With a burn rate based on transaction fees, Polygon ensures that as long as the network remains active, MATIC tokens will be consistently burned, contributing to scarcity and potentially enhancing the value of the token.
As the network evolves, increases in transaction volume could lead to higher burn rates, shortening the time it takes to reduce the total supply of MATIC. With continued growth and adoption, the Polygon burn mechanism could play a significant role in the future value of the MATIC token.