Crypto.com CEO Kris Marszalek was in Washington, D.C. Friday to appear at President Trump’s inaugural White House Crypto Summit. But while he was jet-setting to the nation’s capital to help bring crypto to the mainstream, his stakeholders were feeling forgotten.
On March 2nd, the same day that President Trump announced plans for a national strategic crypto reserve, Cronos Labs, a subsidiary of Crypto.com and the main development team behind the Cronos blockchain, unveiled a governance proposal to reissue 70 billion CRO tokens, or 70% of the original supply, for its own “Strategic Reserve.” The re-minted tokens would restore the original supply of CRO back to its original 100 billion tokens. The rationale is that Cronos Labs wants a new treasury to promote adoption of CRO, with the prime method being not only the creation of the first CRO exchange traded fund (ETF), but the first ETF ever launched by a token issuer.
As expected from token holders suddenly facing massive dilution—the circulating supply of CRO is now only 27 billion tokens—this proposal was met with swift and ferocious backlash. “My first thoughts: massive dilution. Selfishness from the company as nobody from the community would benefit from it,” one large token holder who wished to remain anonymous said to Unchained. But even more than the economic impact of massive dilution, the proposal risks breaking one of crypto’s cardinal rules: burning tokens means they are gone forever.
For both reasons, this proposal has alienated a large and loud portion of the CRO community, whose token is down 41% in the last year and 91% from its all-time high in November 2021. Crypto.com and Cronos Labs have enough voting power in the proposal to make it pass and pursue some of its stated plans like launching an ETF. But if it mints these tokens, it risks harming its userbase and crypto’s perception of immutability, potentially withering away its intrinsic value just as it tries to sell the token to a new wave of investors.
Representatives for both Crypto.com and Cronos Labs did not respond to Unchained’s request for comment.
Burn, Baby, Burn
There is no way to simply delete crypto assets on a blockchain. After all, they are immutable. Instead, if someone wants to take tokens out of circulation, they get burned. This process involves sending tokens to an unrecoverable address. It is the equivalent of gifting tokens to a friend, who then forgets his or her private key. You can see the transaction, you can see the assets on the blockchain, but they may as well not exist.
The most common reason to burn tokens is to shrink the supply to boost the price of a token. Binance, the world’s largest crypto exchange by trading volume, has an automatic burning process in which it takes a percentage of profits, buys a corresponding portion of its native token BNB on the open market, and then sends it to a burn address. In total the company has burned 254,315 units of BNB worth $141 million. In September 2021, the Ethereum network started a burning program with EIP-1559, in which fees paid by users to the network would be burned instead of being given to validators. During times of high usage the amount burned, which totals 5,173,383 ETH worth over $10 billion, outstrips rewards paid to stakers and makes the network deflationary.
But each of these programs affects only a small portion of their respective supplies of 145 million BNB and 120 million ETH. Crypto.com’s burn eliminated 70% of its supply. As far as major tokens go, this was likely the biggest burn in history—especially in terms of market capitalization percentage.
Its token holders were largely happy with the burn at the time. “I thought that was a fantastic catalyst to drive speculation to the chain,” said one CRO holder who goes by the pseudonym Blacksea. “A lot of people in the cryptocurrency space don’t like to talk about the elephant in the room, but the most important thing in my opinion to drive volume somewhere and get people excited about something is for the price to go up.” While a huge price jump did not happen right away, CRO caught the COVID bull run and surged 87% from $0.13 in February 2021 to $0.96 in December of that year. (It’s now all the way down to $0.08.)
Importantly, none of the burned tokens above, nor any other burned tokens based on publicly available information, have ever been recovered or reconstituted. For most people in the industry, it’s sacrilege to do what has colloquially been called a “rollback,” which is hard forking or creating a new chain with the same history up to a moment in time to erase a bad incident. Ethereum controversially chose this type of contentious hard fork in 2016 after a major hack. Last month, the same was briefly discussed, but quickly dismissed, when North Korean hackers stole $1.5 billion worth of ETH from Bybit, the world’s second-largest crypto exchange.
Everyone Wants an ETF
Crypto is full of FOMO, and it appears that token issuers are not immune. Part of the reason for this proposal is to ride on the ETF train that has brought more than $120 billion dollars into BTC and ETH products launched by the likes of BlackRock and Fidelity. The proposal’s Github says a goal of the new mint will include, “Connecting $CRO to institutional liquidity pools through $CRO Exchange Traded Fund (ETF) by Crypto.com, securing a position among the top 10 protocols and achieving US ETF approval will be pivotal for driving institutional adoption of CRO.”
So not only will Crypto.com sell CRO tokens to seed the ETF, but as the issuer of the ETF itself, it wants to also make management fees from its operation.
But the hill will be steep for CRO to climb into a top 10 protocol on the back of an ETF. According to CoinGecko, it is currently the 49th largest token by market capitalization. Number 10 is TRX, with a market cap 10x CRO’s size at $22.5 billion.
Additionally, while the BTC and ETH ETF launches were wildly successful, CRO’s path to success will be much murkier. First of all, aside from more mundane issues like finding a launch partner to help operate the ETF by managing the regulatory compliance and the creation and redemption of shares and listing exchange (i.e. Nasdaq or the New York Stock Exchange), it will need to get in line behind a host of products likely to begin trading later this year such as ETFs tracking SOL, ADA, LTC, DOT, HBAR, DOGE, and XRP. And the likelihood of success for those better known and more valuable tokens is small, with the possible exception of $73 billion Solana and $151 billion XRP.
“Maybe Solana and XRP could garner some assets, significant levels,” said Bloomberg Intelligence ETF Research Analyst James Seyffart of the products mentioned above. “But for the most part, the interest in everything else just doesn’t seem to be as strong.”
CRO, which doubles as a type of reward token and unit of utility on the Cronos blockchain, also lacks the strong fundamentals that traditional traders look for in new investors. According to Token Terminal, the $2.5 billion blockchain only made $2.9 million in fees last year. While that is up from 2023’s $2.6 million, it is a far cry from 2022’s $15.6 million and 2021’s $4.0 million. It only has 6,200 daily active users. For comparison, Ethereum has 410,000 daily active users. None of the revenue that Crypto.com makes from trading fees on the exchange gets included in the token value.
Could Crypto.com Force This Through?
It is easy to see why Marszalek and his team sense an opportunity to grow the ecosystem. Crypto is finally going mainstream. He was just at the White House’s first crypto summit. The iron might never be hotter.
On the other hand, going forward with this plan could harm CRO and the entire crypto ecosystem. Unburning tokens, especially in that amount, would not only completely disrupt CRO’s tokeneconomics but open the Pandora’s Box for anyone else to try the same. The genie cannot be put back into the bottle. To loyal followers of CRO and crypto in general, this is something that central banks do, not token issuers.
Wyll Bildeberg, a CRO enthusiast, wrote on X, formerly known as Twitter, “A burn is a burn, burnt tokens shouldn’t be brought back to life. I’m almost never against anything happening on Cronos, but today, I’m against it, big time! If this pass, it’s [sic] will just be a confirmation that Cronos is heavily centralized, and so can’t be trusted.”
And, it appears that the decision will be Crypto.com’s alone. Voting on the proposal is scheduled to continue through March 16th. According to the current vote count, the vast majority of token holders are voting against the proposal. However, two very large voters, Falcon Heavy and Starship, who two sources told Unchained are operated by Crypto.com, have used their considerable power (in terms of CRO ownership) to put the yes vote ahead by a 50.92% to 48.56% margin. The vote has still not reached quorum, as only 23.50% out of the 33.4% of the necessary votes have been cast. But there is still time, and Crypto.com reportedly controls 80% of the overall voting power. Therefore they could theoretically pass this proposal entirely on its own.
So the decision on what to do next will be entirely in Crypto.com’s hands. It can override the will of its constituents to chase Wall Street acceptance. But taking that risk could permanently damage its loyal community.
“The Cronos ecosystem is very different from what I see on other chains,” said the anonymous token holder. “We barely see any scams and rugs on it, and there is a real meaning in helping each other. There is a strong potential for it to become a major player in the industry, we just need more builders interested in really building something. We are lucky to not have projects just launched to suck liquidities out like the memecoin mania on Solana. We have our own ecosystem, and it’s built by people who are really passionate.”
