Cryptocurrency exchanges are among the most profitable businesses in the digital economy. One of the most transparent ways to understand their financial performance is by analyzing their token burn mechanisms.
Platform tokens are often regularly bought back and destroyed using a portion of the exchange’s profits or trading fees. This reduces the total supply of the token, increasing its scarcity and potentially its value. By examining the volume and value of tokens destroyed, we can estimate the revenue or profit generated by these exchanges during specific periods.
This analysis covers the first three quarters of 2019, a time when major exchanges actively published token burn reports.
Profitability Comparison: Huobi, Binance, and OKEx
The concept of "token burn" gained significant traction in 2019, especially among leading exchanges like Huobi, Binance, and OKEx. Each platform uses a slightly different model for repurchasing and destroying their native tokens.
Huobi’s HT Burn
Huobi Global and Huobi DM use 20% of their net income to repurchase HT tokens. In the first three quarters of 2019, Huobi destroyed 33,588,300 HT tokens, worth approximately $115 million. Based on this figure, the estimated net income for Huobi during this period was around $575 million.
Using a standard industry assumption of 64% pre-tax profit margin—as suggested in an Accenture report—Huobi’s pre-tax profit would be roughly $368 million.
Binance’s BNB Burn
Binance commits 20% of its profits to repurchasing BNB. Between Q1 and Q3 of 2019, Binance burned 3,700,700 BNB, valued at about $76.138 million. This implies a total profit of approximately $381 million for the first three quarters.
OKEx’s OKB Burn
OKEx started its buyback program later than its competitors, announcing it in April 2019. From June 1 to August 31, the platform destroyed 6,104,000 OKB, worth around $14.0368 million.
Since OKEx uses 30% of spot trading fees to fund the buybacks, the spot trading revenue for that period can be estimated at $46.7893 million. Applying the 64% margin, OKEx’s profit from spot trading would be approximately $29.9452 million.
Among these three industry leaders, Huobi and Binance demonstrated the strongest profitability, with OKEx trailing significantly behind in this timeframe.
Second-Tier Exchanges: KuCoin, MXC, and BiKi Lead the Pack
While smaller than the top three, several second-tier exchanges also showed notable profitability through their token burn activities.
KuCoin and KCS
KuCoin was one of the earliest adopters of the token burn model. In the first half of 2019, it destroyed 656,000 KCS, worth about $715,000. Since the platform allocates at least 10% of its quarterly profit to buybacks, this indicates a profit of around $7.15 million for the first two quarters.
In Q3, KuCoin added an extra 894,000 KCS to its burn, signaling even stronger performance.
MXC Exchange and MX Token
MXC Exchange burned 38,438,000 MX tokens in the first three quarters, valued at approximately $5.6119 million. The platform uses 100% of profits from trading fees to repurchase MX daily. This suggests that MXC’s trading fee profit reached about $5.6119 million during this period.
BiKi Exchange and BIKI Token
BiKi destroyed 91 million BIKI tokens between January and September 2019, worth around $6.2569 million. The exchange commits 100% of trading fee revenue—from both mining and non-mining pairs—to token buybacks. Thus, BiKi’s revenue from trading fees was about $6.2569 million. Assuming a 64% profit margin, their pre-tax profit would be around $4.0044 million.
BKEX and BKK Destruction
BKEX burned 8,310,500 BKK tokens in the first three quarters, worth approximately $1.1053 million. The platform uses 70% of all trading fees to buy back BKK. This implies a total fee revenue of about $1.579 million and a pre-tax profit of around $1.011 million.
Other exchanges like ZB also announced burn events but did not provide enough detail for comparison.
Among second-tier exchanges, KuCoin was the most profitable, followed by MXC and BiKi. It’s worth noting that many of these platforms also profit from listing new tokens, which is not reflected in these figures.
Frequently Asked Questions
What is a token burn?
A token burn is a process where a cryptocurrency project or exchange permanently removes a number of tokens from circulation. This is often done to control inflation, increase scarcity, and reward long-term holders.
Why do exchanges burn tokens?
Exchanges use token burns as a transparency mechanism to show profitability. It’s also a way to return value to token holders, as reducing supply may increase the value of remaining tokens.
How can token burns indicate profitability?
Most exchanges use a fixed percentage of profits or trading fees to buy back and burn tokens. By tracking the value of burned tokens, one can estimate the exchange’s revenue or profit during that period.
Are all token burn models the same?
No, each exchange has its own rules. For example, some use a percentage of profits, while others use a share of trading fees. The frequency of burns also varies.
Do token burns affect the price of the token?
While not guaranteed, reduced supply often leads to increased demand, which can positively influence the token’s market price over time.
Is token burning used outside of exchanges?
Yes, other blockchain projects also use burning to manage token supply. However, the practice is most common among exchange-based tokens.
Conclusion
Token burns offer a rare window into the financial health of cryptocurrency exchanges. Based on 2019 data, Huobi and Binance were the most profitable, with strong performances from second-tier players like KuCoin, MXC, and BiKi.
It’s important to remember that these figures are estimates based on public burn reports and industry-standard profit margins. Actual results may vary, and profitability can be influenced by many factors, including market conditions, new product offerings, and regulatory changes.
For those interested in tracking these metrics in real-time, 👉 explore live exchange data tools that provide detailed analytics on token burns and trading volumes.