How Does a Deflationary Model Affect the Incentive for Long-Term Holding?
A deflationary model, especially one with a fixed or burning supply, increases the incentive for long-term holding because the token's scarcity is guaranteed to increase over time. Holders are incentivized to keep their tokens off the market, expecting their share of the network's value to appreciate due to the shrinking supply.
This contrasts with inflationary models, which incentivize spending or staking to offset dilution.
Glossar
Deflationary
Concept ⎊ A Deflationary asset exhibits a supply schedule where the total circulating quantity is designed to decrease over time, often through mechanisms like token burning or fixed caps.
Deflationary Model
Model ⎊ The deflationary model, within cryptocurrency, options, and derivatives, describes a system where the circulating supply of an asset diminishes over time, typically through mechanisms like burning or buybacks.
Incentive
Mechanism ⎊ Incentive structures within cryptocurrency, options trading, and financial derivatives function as engineered protocols to align the interests of diverse participants, influencing behavior and mitigating agency problems.
Deflationary Token
Mechanism ⎊ A Deflationary Token is a digital asset designed with an intrinsic mechanism to perpetually reduce its total circulating supply over time.