The Stellar Foundation conducted what is possibly the biggest coin burn in the history of crypto space by sending 55 billion Stellar Lumens (XLM), worth $3.85 billion, to an address that no one owns.
Coin burns have become an increasingly popular way to prop up the market price of altcoins. For example, Bitfinex’s LEO token plans on eventually burning the entire coin supply through buybacks using a percentage of Bitfinex’s profits. Binance regularly burns Binance Coins (BNB) via buybacks, although they do not plan on burning the entire supply.
The idea is that supply is decreased via coin burns, which causes a price increase if demand stays constant. However, in reality coin burns do not remove any active supply, they remove coins held in a company’s treasury that were outside of the market. That being said, coin burns almost always cause a brief pump in price since they spark short-term investor speculation.
Indeed, the 55 billion Stellar Lumens (XLM) that were burned were not within the active market supply, and the only noticeable result of this burn was a rise in the Stellar Lumens (XLM) price from $0.07 to $0.08, all of which occurred in less than two hours due to investor speculation. This is equivalent to a $200 million increase in Stellar Lumen’s (XLM) market cap.
Theoretically in the very long-term, this coin burn will lead to less price suppression although the Stellar Foundation states that the 30 billion Stellar Lumens (XLM) it still has in its treasury are enough to last 10 years. Therefore, there are still 10 more years of price suppression planned via dumping these 30 billion Stellar Lumens (XLM), and only after that will the positive effect of this burn become a reality in the form of the Stellar Foundation not being able to dump any more coins.
In other words, $3.85 billion of tokens were thrown into the trash for what is the equivalent of a marketing gimmick to induce a rally. A rally happened, but it only lasted two hours and only $200 million of value was added to the market, meaning $3.65 billion of value was lost. This seems like a very uneconomical way of doing things.
It gets worse when looking at the ethical nature of this coin burn. The Stellar Foundation states “why burn at all? Obviously all the above could just as easily have been funded through SDF’s original programs, and funded with many, many lumens to spare. What we always came back to is, we should only keep what we’re confident we can actually use. And use relatively soon, at that–in the next ten years… Getting to our goal and still having lumens at the end would serve no purpose.”
Basically the Stellar Foundation is saying they can achieve all of their goals with just 30 billion Stellar Lumens (XLM), and therefore the other 55 billion tokens had no purpose, so why not throw them into the trash. Simultaneously, the Stellar Foundation tries to pull on the heart strings of the decentralized crypto space crowd, by saying they are voluntarily reducing their power and lifespan so that the network will become completely decentralized in 10 years.
One major thing the Stellar Foundation has forgotten about is charity. An unknown but enormous amount of people around the world are struggling on a day to day basis to pay for food and shelter and other necessities. Indeed, the economy is on the brink of a global recession, and this humanitarian situation only looks to worsen.
If the Stellar Foundation believed they had no use for 55 billion tokens worth $3.85 billion, they could have started a world class charity program, where people who are in emergency situations could apply for food and shelter. $100 is a big deal to people who have nothing and are starving, and $1,000 could be life changing.
The Stellar Foundation could have given $1,000 to 3.85 million people and truly changed their lives for the better. Simultaneously, this would increase the reputation and success of the Stellar Foundation, quite simply because when you do the right things the right things happen.
Instead, the Stellar Foundation decided they do not need the money and threw it into the trash.
Some may argue that such a charity program would hurt the market, but it could have been done in a way that would not impact the market at all. Stellar Lumens (XLM) actually have over $400 million per day of volume, which is high liquidity relative to most of the rest of the crypto space. The Stellar Foundation could have given $1,000 to 50 people every day without hurting the market at all, and this program could have continued for over 200 years.
Also, the crypto market is likely to experience major rallies to new heights multiple times over the long term, meaning the charity program could have continued indefinitely and Stellar Lumens (XLM) would be worth more than ever anyways.
Truly, this is the dark side of crypto capitalism, where a company throws out billions of dollars for a short term marketing gimmick, instead of utilizing the funds they have been blessed with to do real long term good. Hopefully, other crypto companies learn from this story and consider giving to charity if they have excess funds they do not need, instead of throwing them away.