What is the SNX token burning mechanism?
The SNX token burning mechanism is a process that reduces the total supply of SNX tokens in circulation.
This is done by burning a portion of the tokens that are held in reserve. The burning process is triggered when users convert their Synths (Synthetix Network Tokens) into sUSD (Synthetix Stablecoin). When this happens, a portion of the SNX tokens held in reserve are burned, reducing the total supply of SNX tokens.
The burning mechanism helps to maintain the value of SNX tokens by reducing the total supply and increasing demand for them. It also helps to incentivize users to use Synths as they know that their conversion into sUSD will result in a reduction in the total supply of SNX tokens, thus increasing its value. The amount of SNX burned depends on how much sUSD is created from Synths.
The more sUSD created, the more SNX burned. This ensures that there is an equilibrium between supply and demand for both Synths and sUSD. The burning mechanism also helps to reduce inflation as it reduces the total supply of SNX tokens over time, thus helping to maintain its value.
