How Can a Protocol Use Deflationary Mechanisms (Like Token Burns) to Counteract Inflation?

A protocol can use token burns to counteract inflation by permanently removing a portion of the circulating supply, typically funded by transaction fees or protocol revenue. If the rate of burning exceeds the rate of new token issuance (inflation), the token becomes net deflationary.

This creates upward pressure on the token's price by increasing scarcity, effectively offsetting the dilution caused by the inflationary issuance.