Burn and Mint Equilibrium

Written by George Adams

Introduction

The burn-and-mint equilibrium (BME) model is a token economic structure used by certain crypto networks. This model utilizes a two token system: proprietary payment tokens and tradable tokens that attempt to accrue value. Factom pioneered the BME model, while Helium is another notable network that uses this model.

In this model users must burn the “value-seeking” tokens in order to receive the “payment” tokens. There are two important caveats to the payment tokens:

(1) payment tokens can only be used to acquire services within the specific crypto network (similar to airline miles)

(2) the exchange rate of value-seeking tokens and payment tokens should be fixed and denominated in USD or some other external currency.

After burning value-seeking tokens to receive payment tokens, users then spend the payment tokens in order to use the network’s services. This is a way for the users to display to the network that the service provider completed the work for the value-seeking tokens that were burned. It’s important to note that these payment tokens are not transferable. The user isn’t sending them to anyone, they’re merely using them to acquire a service (again, similar to how a user spends airline miles to get on a flight).

Service providers then earn rewards by inflationary minting which is independent of the token burning process. As the network grows in usage, the value-seeking tokens are burned and the tokens accrue more value. As they grow in value less will need to be burned to receive the same amount of USD denominated payment tokens. The reverse occurs if usage decreases, thus creating a dynamic to bring the network to an equilibrium.

Suggested Reading

New Models for Utility Tokens by Kyle Samani

Burn and Mint Equilibrium Pro’s and Con’s by Peter Atanasovski

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