Why doesn’t the 100 million dollar token burning of Floki Ino affect the price of this meme coin?

The Floki Ino token community recently voted in favor of shutting down one of the main interchain bridges associated with this project, and 4.97 trillion tokens of this bridge, worth $100 million, were to be burned; But can this token burning have a direct effect on the price of Floki?

According to DeCrypt, this bridge allows users to transfer their Floki tokens from the Ethereum network to the Binance Smart China network. As you probably know, different blockchains are usually not compatible with each other and the transfer of assets from one network to another requires an intermediary protocol or an inter-chain bridge.

To deactivate this bridge, 4.97 trillion Fluke tokens are supposed to be burned. The value of this amount of Floki Ino at current prices is equal to 117 million dollars.

OK; Is it now safe to say that the Floki Ino community is going to lose $117 million of its tokens?

The short answer is “no” and we will tell you why.

The story of the token burning of the Floki Ino bridge

This inter-chain bridge was launched in July 2021 (Tir 1400) and for its operation, it needed to multiply an equal amount of Floki token in the Binance Smart China network; That is, 10 trillion Floki in the Ethereum network and 10 trillion Floki in Binance Smart China.

In order to start the work of the inter-chain bridge, it was necessary to set aside some liquidity in order to ensure the smooth execution of transactions. This is exactly why the Floki Ino project transferred 600 billion Floki units from its treasury to the account of this bridge.

In this process, users must first deposit their Floki tokens into Paul’s account; That is, basically, take your asset out of circulation by locking it in the protocol of this interchain bridge. After doing this, they will receive the same amount of tokens they have locked in the Binance Smart China network. The same is true when tokens move in the opposite direction, from Binance Smart China to Ethereum.

At the beginning of this section of the report, we mentioned that the total supply of Floki Ino is 20 trillion units, but basically the design of this bridge shows that with every deposit for token transfer, some Floki is removed from the circulating supply. It is necessary to emphasize again, the tokens that are deposited in this bridge are not transferred through the network and are only compensated with their equivalent in the destination network.

For example, the 600 billion Floki Inos that we mentioned earlier were used to start the work of this inter-chain bridge, is not considered among the 9.3 trillion circulating supply of this meme coin announced on the CoinGecko website.

Now, if we check the two smart contracts that have formed this bridge, we can see that 1.77 trillion Floki are locked in the Ethereum network and 3.8 trillion units of this memecoin are locked in the Binance Smart China network.

The sum of these two numbers is 5.57 trillion units, which are basically not counted in the circulating supply figure of Floki Ino and therefore do not directly affect the price of this digital currency; Unless they somehow get out of this bridge. This is why these tokens can be considered valuable to a hacker.

Hacking interchain bridges is nothing new in the cryptocurrency space, and some of the industry’s biggest hacks of 2022 have been linked to the theft of these Chinese interblock bridges. In March of last year (early April 1401), the Ronin interchain bridge, associated with the famous blockchain game Oxy Infinity, was hacked and $622 million was stolen. In October, 566 million dollars were stolen from another bridge called “BSC Token Hub”.

So why does Floki intend to burn tokens?

Now we come to the main question of Floki Ino holders; Why is this token burning done?

Suppose a hacker succeeds in exploiting the contracts of this bridge to access these 5.57 trillion tokens. In this case, the circulating supply of Floki in both the Ethereum and Binance Smart China networks will exceed 10 trillion, which is a clear violation of the Tokonomics of this project. This hypothetical event will have a very strong negative impact on the price of Fluke Ino.

Therefore, in order to prevent such a crisis, the Floki community has decided to burn 4.97 trillion units of these 5.57 trillion Floki on February 9 (20 Bahman).

The remaining 600 billion units will be returned to the Floki treasury, and in fact, this figure is the same amount that was allocated to start the work of this bridge. In the end, the total supply of Floki will remain unchanged.