How Does a Deflationary Token Model Attempt to Maintain or Increase Value?
A deflationary token model attempts to maintain or increase value by systematically reducing the total or circulating supply of the token over time, creating scarcity. This is often achieved through mechanisms like transaction fees being "burned" (destroyed), or periodic buybacks and burns funded by protocol revenue.
By decreasing the supply while demand remains constant or increases, the model aims to exert upward pressure on the token's price. However, this is not a guarantee of value, as market sentiment and utility are also crucial factors.
Glossar
Deflationary Token Model
Mechanism ⎊ A deflationary token model, within cryptocurrency and derivatives, introduces a diminishing supply schedule, typically through burn mechanisms or transaction fees redistributed to reduce circulating tokens.
Circulating Supply
Token ⎊ The circulating supply within cryptocurrency contexts represents the number of tokens currently available and actively traded on exchanges or held by investors, excluding those locked in smart contracts, staking agreements, or otherwise inaccessible.
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 Token
Mechanism ⎊ A Deflationary Token is a digital asset designed with an intrinsic mechanism to perpetually reduce its total circulating supply over time.