What Mechanisms Can a Protocol Implement to Intentionally Reduce a Token’s Velocity?

Protocols can implement several mechanisms to reduce velocity. The most common is mandatory staking or lock-up for governance rights or to earn yield.

Requiring the token as collateral in DeFi applications also reduces its circulation. Additionally, implementing a time-based vesting schedule for team and early investor tokens limits the immediate supply entering the market.

Finally, a well-designed fee-burning mechanism can reduce the effective circulating supply, which acts similarly to reduced velocity.