What Is the Difference between a Deflationary and an Inflationary Token Model?
An inflationary token model continuously increases the total token supply, often through staking rewards or mining, leading to dilution of existing holders unless demand outpaces supply. A deflationary model actively reduces the token supply, typically through token burns funded by protocol revenue, leading to increased scarcity.
Deflationary models are generally preferred for intrinsic value as they create a net positive value accrual for holders, assuming the burn rate is sustained.
Glossar
Deflationary Models
Model ⎊ The concept of deflationary models, particularly within cryptocurrency, options, and derivatives, centers on mechanisms designed to reduce the circulating supply of an asset over time.
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.
Inflationary Token Model
Model ⎊ Inflationary Token Model describes a protocol design where the total or circulating supply of the native asset is programmed to increase over time, typically used to fund network security (staking rewards) or reward liquidity providers.
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.
Staking Rewards
Return ⎊ Staking Rewards are the compensation issued to validators or delegators for their contribution to network security and transaction processing within a Proof of Stake system, typically paid in newly minted tokens or collected transaction fees.