The community behind the Elon Musk-inspired meme coin Floki just voted to take down one of its key bridges.
The bridge in question lets users move Ethereum-based Floki tokens over to the BNB Chain. Different blockchains are usually incompatible and need a “bridge” to move tokens from one network to another.
To deconstruct the bridge, the project is burning (crypto lingo for destroying) 4.97 trillion Floki tokens. Those tokens, on the open market, would be worth over $117 million.
So does that mean Floki is destroying more than $117 million of its tokens?
Not really. Here’s why.
The Floki bridge burn
When the cross-chain bridge first launched in July 2021, the project needed to mint an equal amount of BNB Chain-based versions of the Floki token.
That means a 10 trillion total supply on Ethereum and a 10 trillion total supply on the BNB Chain.
And to kick the bridge off, it needed to be “seeded” with some initial liquidity to ensure transactions could move back and forth. The project deposited 600 billion Floki tokens from its treasury into the bridge for precisely this reason.
In this bridge arrangement, users migrating between chains would first deposit their Ethereum-based tokens into the bridge, essentially removing them from circulation by locking them into the bridge. On the BNB Chain side, they would receive the same amount of tokens. The same is also true when funds move in the opposite direction.
And though the above suggests that the total supply for Floki is 20 trillion, the bridge’s design means that with each deposit, those tokens are effectively leaving circulation. The tokens that users deposit into the bridge are not moving across the bridge, they are simply being mirrored on the other chain.
For instance, that 600 billion in Floki tokens used to seed the bridge are not counted as part of the token’s circulating supply of 9.3 trillion tokens, per CoinGecko.
Now, if we examine the two corresponding smart contracts that make up the bridge, we can see 1.77 trillion Floki tokens are locked on Ethereum and 3.8 trillion locked on BNB Chain.
These combined 5.57 trillion tokens are not included in the circulating supply of Floki either, and thus don’t affect the token’s price. Unless, of course, they were somehow moved out of that bridge.
And this is why those tokens could, in the event of a hack, be worth something to someone.
Bridge hacks are not uncommon in crypto. Some of the industry's largest hacks in 2022 were related to attackers robbing various bridges. In March Axie Infinity's speedy Ronin bridge was hacked for $622 million and then in October, hackers nabbed $566 million from the cross-chain bridge called BSC Token Hub
Why the FLOKI fire?
This brings us to the final question: Why the token burn?
If a hacker were somehow able to exploit the cross-chain bridge’s contracts to gain access to these 5.57 trillion tokens, FLOKI’s circulating supply across both chains would breach 10 trillion, ruining the tokenomics of the project. That, in turn, would have a significant negative impact on the token’s price.
Thus, as a precaution, the Floki DAO will burn 4.97 trillion of the 5.57 trillion non-circulating tokens in the bridge contract on February 9.
The remaining 600 billion FLOKI will be returned to the Floki treasury, which it initially sent to seed the cross-chain bridge. When it’s all said and done, the total supply of Floki remains unchanged and its circulating supply will increase to 9.9 trillion.