Cardano Exploring Token Burning Mechanism Similar To Ethereum

The latest roadmap status update from Cardano suggests the blockchain may be investigating adding some form of token burning functionality, a feature that was added to Ethereum last year as part of the London hard fork update.

The Cardano update, released on its website on March 18, was vague about what is planned in terms of token burning, simply saying it was an option under consideration by the Hydra Team:

Finally, they inspected the options of token minting and burning within a Hydra Head along with scenarios of using tokens instead of datums.

Cardano status update

Confusion About Token Burning

The mention of token burning in this update was taken by some in the crypto industry to signal that Cardano founder Charles Hoskinson had dropped his known, long-standing opposition to token burning on the blockchain:

However, close followers of Cardano emphasised that the update stated token minting and burning may be coming to the Cardano layer-2 scaling solution Hydra, not the main Cardano blockchain itself:

Hydra is a layer-2 scaling solution for Cardano currently under development. Matthias Benkort, a Cardano software engineer, describes it as “an off-chain mini-ledger between a restricted set of participants, which works similarly (albeit significantly quicker) to the on-chain main ledger”.

Token burning being restricted to Hydra implies that the overall supply of ADA, Cardano’s native token, won’t be reduced and therefore won’t cause upward price pressure for ADA investors.

Hoskinson Attempts to Clarify

Hoskinson himself weighed in on the debate, retweeting a suggestion that Cardano is exploring token burning on its main blockchain and adding a GIF of an exasperated-looking Jackie Chan to express his frustration with the confusion:

Across the broader crypto market, token burning functionality has been implemented on many blockchains as a deflationary mechanism in order to increase token price. Last year, Binance burnt over 1.3 million BNB, at the time valued at almost US$400 million, in one of its quarterly token burns.

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