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What are deflationary tokenomics systems?
Deflationary tokenomics systems in the world of cryptocurrency have a unique goal of reducing the token’s supply over time by destroying a percentage of it with each transaction. The system accomplishes this by including a transaction fee that is used to purchase and then burn a portion of the token.
The primary objective of deflationary tokenomics is to create scarcity and drive up the value of the token. By reducing the token’s supply, there is potential for an increase in demand, which ultimately leads to a rise in the token’s price. This mechanism is often utilized by new cryptocurrencies to create buzz and drive demand for their token.
However, it’s important to note that deflationary tokenomics systems do carry some risk. The reduction in supply can lead to liquidity issues, which can make trading the token more difficult. Additionally, if the token’s price becomes too high, it may discourage people from adopting and using the token for its intended purpose.
Explanation of deflationary tokenomics and its benefits
Deflationary cryptocurrencies are coded with a predetermined deflation rate, which determines the percentage decrease in the currency’s total supply over time. For instance, a cryptocurrency may have an annual deflation rate of 2.5%, which means that the currency’s total supply will decrease by 2.5% annually. Additionally, deflationary cryptocurrencies may have a fixed or variable maximum supply that limits the total number of tokens created.
However, it’s worth noting that the economics of deflationary cryptocurrencies are influenced by the incentives of miners, developers, and users who have varying motivations and goals that impact the cryptocurrency’s supply and demand. Miners, who create new coins, tend to hold newly mined coins in bull markets instead of selling them on the market, affecting the overall supply.
Deflationary cryptocurrencies use various instruments to reduce token supply, including “halving” and coin burning. “Halving” is a process that reduces the mining rewards for BTC miners every four years, directly affecting BTC’s scarcity. Meanwhile, coin burning involves sending a specific amount of coins to an inaccessible address, directly removing them from circulation.
The benefits of deflationary tokenomics include the creation of scarcity, which leads to an increase in demand and potentially drives up the token’s price. It also helps to limit the total supply of tokens, which can prevent inflation and protect the token’s value.
In conclusion, deflationary tokenomics is a unique approach used in cryptocurrencies to create scarcity and limit the total supply of tokens. While there are potential risks associated with this approach, such as liquidity issues and supply manipulation, the benefits of deflationary tokenomics include creating scarcity, limiting the total supply of tokens, and protecting the token’s value.
Comparison to other tokenomics systems
| Deflationary Tokenomics | Inflationary Tokenomics | |
|
Supply |
Fixed supply |
Increasing or unlimited supply |
| Mechanism to reduce supply | Coin burning, transaction fees | No mechanism to reduce supply |
| Deflation/Inflation rate | Deflationary rate determined | Inflationary rate determined |
| Impact on value
|
Increasing value over time due to scarcity | Decreasing value over time due to oversupply |
| HODLers’ advantage
|
Higher compensation due to upward pressure on value | Volatility may present investment opportunities |
| Potential risks
|
Liquidity issues, high token price may deter adoption | Depreciating buying power over time |
Deflationary tokenomics and inflationary tokenomics are two different approaches used in the world of cryptocurrencies. Deflationary tokenomics employs mechanisms such as coin burning and transaction fees to reduce the supply of tokens and create scarcity. In contrast, inflationary tokenomics has an increasing or unlimited supply to keep up with or exceed demand, leading to a decrease in the coin’s value over time.
Deflationary tokenomics has a fixed supply, leading to an increase in value over time due to scarcity, which may be advantageous for HODLers. However, it carries potential risks such as liquidity issues and a high token price that may deter adoption. In contrast, inflationary tokenomics may present investment opportunities due to its volatility, but its decreasing value over time may not be advantageous for long-term investors.
In short, both deflationary and inflationary tokenomics have their advantages and disadvantages, and their suitability depends on the specific use case and goals of the cryptocurrency.
Use cases of deflationary tokenomics
- Store of value: Deflationary tokens can be used as a store of value for investors who are looking to preserve their wealth. The scarcity created by the reduction in token supply can potentially drive up the value of the token over time.
- Transactional use: Deflationary tokens can be used in transactions, particularly in situations where a stablecoin is not required. The scarcity of the token can provide a level of security and stability, making it a preferred choice for certain types of transactions.
- Loyalty programs: Deflationary tokens can be used as part of loyalty programs where customers can earn and accumulate tokens as a reward for their loyalty. The scarcity of the token can make it more valuable over time, creating an additional incentive for customers to participate in the loyalty program.
- Gaming: Deflationary tokens can be used in the gaming industry, particularly in the case of non-fungible tokens (NFTs). The scarcity of the token can make it more valuable over time, creating a sense of rarity that can add to the appeal of the game.
SFM Token Overview
Safemoon V2(SFM) is a deflationary cryptocurrency built on the Binance Smart Chain (BSC) that has gained popularity for its unique features, such as the “reflection” mechanism. The reflection mechanism compensates token holders for retaining their tokens. Whenever someone buys or sells SFM, a 10% transaction fee is charged, with 5% allocated to liquidity providers and the remaining 5% distributed among token holders.
SFM Token Price
At the time of writing, safemoon v2 price usd is $0.00022 per token, with a 24-hour trading volume of $1,241,611 USD. The highest price paid for Safemoon V2 was $0.0033 USD, recorded on January 5, 2022.
BONFIRE Token Overview
Bonfire (BONFIRE) is a cryptocurrency token built on the Binance Smart Chain (BSC) that was launched in April 2021. The token’s features include a 10% transaction fee on all trades, with 5% allocated to liquidity providers and the remaining 5% distributed among token holders. Additionally, manual token burns are performed to increase demand by reducing the supply.
BONFIRE Token Price
The current price of BONFIRE is $0.000000000114 per token, with a 24-hour trading volume of $10,688 USD. The token’s price history has been volatile, with its all-time high (ATH) at $0.00000068 in May 2021 and an all-time low of $0.000000000065 in June 2021.
ELONGATE Token Overview
ELONGATE is a cryptocurrency token built on the Binance Smart Chain (BSC) that was established in March 2021. The token’s unique feature is its focus on philanthropy, with 10% of transaction fees donated to charitable causes chosen by the community. Additionally, the token is deflationary, with a weekly burn of 43.7% of tokens sent to a dead wallet.
ELONGATE Token Price
As of writing, the current price of ELONGATE is $0.000000044 per token, with a 24-hour trading volume of $44,000 USD. Its all-time high (ATH) was recorded in May 2021 at $0.00000086, while its all-time low was recorded in June 2021 at $0.000000000065.
Сonclusion
These three tokens offer unique features and characteristics that differentiate them from other cryptocurrencies. While their prices have been volatile in the past, they continue to gain attention and may offer investment opportunities for those interested in the cryptocurrency market. However, it is important to conduct thorough research and exercise caution before investing in any cryptocurrency.
