What Factors Typically Cause a Decrease in a Token’s Velocity?

A decrease in velocity often results from increased utility for holding the token, such as staking for governance rights or receiving protocol fees. Illiquid holding by long-term investors or the use of the token as a collateral asset in DeFi also reduces the frequency of transactions.

Token lock-up mechanisms, like vesting schedules or mandatory bonding, directly remove tokens from the active circulating supply, leading to lower velocity. Any mechanism that incentivizes holding over transacting will decrease velocity.