# Baking and Burning
## Baking
**Mechanism:** Users can bake `$BREAD` by depositing `$BERA` into the protocol's smart contract.
**Fee:** A `2.69%` fee is applied to each baking transaction. Fees are added to the protocol, increasing the `$BERA` backing per circulating unit of `$BREAD.`
**Dynamic Baking Cap:** a baking cap is determined each week. If the cap was reached in the previous week, the baking cap increases by `50%`, allowing for new `$BREAD` baking. If the cap was not reached, then it remains unchanged. The initial supply cap is `6.9 million` `$BREAD`.
**Master Baker:** The controller of the dynamic baking cap, and can impose whitelists on baking in order to benefit the protocol. This is an ongoing administrative function.
## Burning
**Mechanism:** Users can redeem `$BERA` by burning `$BREAD.`
**Fee:** A `2.69%` fee is applied to each redemption.
\*`2.69%` baking and burning fee incurred on each Bake and Burn. `65%` of fee increases `$BERA` backing, `35%` is directed to Protocol Treasury for bribes and OpEx.
## Example
* Let's assume there are `100` `$BREAD` tokens in existence, and there is `100` `$BERA` tokens backing them in the contract. That means the exchange rate between them is 1:1, giving a price of `1` `$BERA` per `$BREAD`
* There is a `2.69%` bakng fee, so to bake the next `$BREAD` token a user must pay `1.0269` `$BERA`. Of the fee collected, `65%` or `0.017485` `$BERA`, is added to the backing
* There is now `101` `$BREAD` in circulation and `101.017485` `$BERA` in the backing. The new exchange ratio is now approximately `1.0001731188` `$BERA` per `$BREAD`
* This exchange rate still increases in `$BREAD`'s favor if there is a burn. Let's assume a user burns `3` `$BREAD` to redeem `$BERA`. There is a `2.69%` burning fee. Of the fee collected, `65%` or `0.052455` `$BERA`, is added to the backing
* There is now `98` `$BREAD` in circulation and `98.06994` `$BERA` in the backing. The new exchange ratio is now approximately `1.0007136735` `$BERA` per `$BREAD`.
* The backing always increases, regardless of a Bake or Burn occurring.
```
[User Deposits 1.0269 BERA]
|
v
+---------------------------+
| BREAD Token Smart Contract |
+---------------------------+
|
|---> Adds to Contract Backing:
| - 1.00 BERA (Base Amount)
| - 0.017485 BERA (65% of Fee)
|
|---> Distributes Fees:
| - 0.004035 BERA (15% of fee) to PoL Bribes
| - 0.00538 BERA (20% of fee) to Treasury
|
|---> Bakes 1 BREAD Token
v
[User Receives 1 BREAD Token]
```
---
# Agent Instructions: Querying This Documentation
If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.
Perform an HTTP GET request on the current page URL with the `ask` query parameter:
```
GET https://documentation.bakerdao.io/mechanics/baking-and-burning.md?ask=
```
The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.
Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.