Deflationary Tokens – A Complete Definition
Deflation in the normal world is considered economic contraction or a decrease in the normal price level. Deflation in crypto refers to reducing the crypto asset’s value due to over-minting that particular asset or token. Deflationary tokens are cryptocurrencies designed to reduce supply over time, preventing the overpopulation of these digital currencies in the market, and resulting in increased demand.
For better understanding, let us consider an example. If the ideal percentage of deflationary cryptos to reduce the number over time is 2% per annum. If the coin supply is 10,000 in 2022, it will be reduced to 9800 by 2023, 9640 by 2024, 9447.2 in 2025, and so on. With the reduction in supply, the demand and the price gets increase.
Benefits of Deflationary Token Development:
- Due to limited supply, many investors actively invest in these token resulting in quicker token supply.
- The supply is less than the demand, making way for high liquidity.
- The token value can remain stable as the supply is low.
For a better understanding, let us look at the key differences between inflationary crypto and deflationary cryptocurrencies.
Key Difference Between Inflationary Crypto And Deflationary Crypto:
|Inflationary Crypto||Deflationary Crypto|
|Higher supply than demand||Lower supply than demand|
|Since the supply is higher than demand, the purchasing power of the inflationary crypto is low.||Since the supply is lower than demand, the purchasing power of deflationary crypto is high.|
|Inflationary crypto can be converted to deflationary crypto by either burning the tokens or setting a limit on the total supply of the tokens.||Deflationationary crypto cannot be converted to inflationary crypto as they are minted to be deflationary by nature.|
|The value of inflationary cryptos is less when compared to deflationary cryptos.||The deflationary crypto value rises over the period as the supply is limited.|
|For example, Dogecoin is an inflationary coin. There is no limit on the supply of Doge coins.||For example, Bitcoin is a deflationary coin. Once 21 million coins are minted and put into circulation, no additional coins can be minted. 90% of the Bitcoin is already in circulation, and the deflation percentage is 0.5% yearly.|
Now that you have seen the key differences between inflationary and deflationary cryptos let us briefly discuss the popular deflationary cryptos.
List Of Deflationary Cryptocurrencies
- Binance Coin (BNB): BNB, the native token of Binance, is a deflationary token that uses buy back and burn method. Each year a fraction of coins are burned A fraction of coins is burned every quarter of the year until the total coin supply gets reduced by 100 million. Currently, 161.07 million BNB coins are in circulation after the last burn. The total number of BNB coins in circulation was 200 million.
- Bitcoin (BTC): Bitcoin is both inflationary and deflationary. It is inflationary because more coins are mined and added and deflationary because the mining is stopped once the total coin’s supply reaches 21 million. The miners’ rewards are halved every four years.
- Ripple(XRP): Ripple uses a different way to maintain its deflationary nature. In the beginning, 100 billion XRP were in circulation. In 2017, about 55 million coins were locked away and were released periodically to increase demand and maintain liquidity. A transaction fee is collected for each transaction made using XRP. The fee is not sent to the central authority or not paid to validators. This fee is burned to maintain the deflationary nature of the XRP coin.
Similarly, there are many other deflationary coins like Crypto.com (CRO), Litecoin (LTC), Tenset (10SET), Filecoin (FIL), TRON (TRX), BOMB (BOMB), NUKE (NUKE), Terra (LUNA), Polygon (MATIC), SafeMoon (SAFEMOON), PancakeSwap (CAKE), Ethereum Classic (ETC), Solana (SOL), etc.
Wondering how these cryptos are removed from the blockchain. Let us see the two ways of deflating cryptos from the market.
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Methods of Deflating Cryptocurrencies
There are two standard ways to remove coins from the market
The token company purchases a substantial number of coins for the owners and burns them by sending them to dead addresses. With this, the coins are destroyed, and the number of coins in circulation in the market is reduced. The few top deflationary tokens following this technique are FTT, CAKE, BNB, etc.
- Burn-On Transactions
The burn-on transaction is a way of reducing the number of tokens from on-chain transactions. This totally depends on the trade volume. Higher the trade volume, the higher the number of tokens that get removed from the blockchain. The main benefit of this method is it keeps demand stable by removing coins at regular intervals. Top crypto using this method are SAFEMOON, HyperJump, BNB, etc.
Steps Involved in Deflationary Token Development:
Step 1: Decide Your Blockchain
It is well known that for any cryptocurrency development, the first step is to decide on the blockchain on which you want to build your deflationary token. Ethereum is the most preferred blockchain by crypto projects. There are many other popular blockchains like Binance Smart Chain, Solana, etc.
Step 2: Token Properties
After deciding on the blockchain for your deflationary tokens, it is time to define the properties of your token. Identify the utility of your token and decide on the token standard you will deploy. ERC20 is the popularly and widely used token standard because of its inherent features. With ERC20 token development, you have the option to specify the total token supply to the name and symbol of the token, along with decimal numbers of the token. Additionally, you can check the balance in addresses, and you can quickly enable and verify transactions.
Step 3: Smart Contract Development:
Smart contract development is a vital part of any blockchain project. Decide on the set of conditions or processes that are to be included in the contract. Once it is decided, a developer converts them into lines of code. After the smart contract development is complete, they are tested multiple times to see if it is getting executed as per your needs. The next step is to deploy smart contracts in your project.
Step 4: Deployment on Blockchain
After smart contracts are developed, the next step is to deploy them on the blockchain. Deploying smart contracts on the blockchain is easy. Only one transaction from the developed smart contract is enough. The contracts get added to your preferred blockchain.
Advantages Of Deflationary Token Development:
- Deflationary tokens’ value will not go down as they are not affected by the crypto market volatility. People can confidently invest in deflationary coins.
- Deflationary coins can help to prevent the circulation of unsold coins in the market.
- As the number of tokens gets reduced over time, it results in increasing the value of the coin. In other words, there is no depreciation in the coin’s value. The value gets appreciated.
- These tokens offer increased returns as the price of the coin increases over time.
If you are planning to start a crypto project and are confused about the choice between inflationary or deflationary token development? Our team of experts will understand your business needs and provide you with a suitable solution. Contact us right away and clear your doubts.