Blockchain technology has led us into a digital era, which includes the financial sector. More people are becoming interested in dealing with digital currencies. This progress is something that most of us did not anticipate. However, the cryptocurrency industry continues to grow at an unparalleled rate. The global pandemic provided the perfect opportunity for crypto to shine. As a result, these tokens are critical to the Crypto ecosystem. This also gives paramount superiority to the role of a token development company.
There are currently approximately 11,800 coins in circulation, with more on the way. The cryptocurrency market capitalization has surpassed $2 trillion and is projected to continue to rise. As a result, it is critical to recognize that the economic models of some of the market’s currencies are the driving force behind their rise. These coins are deflationary tokens, with the newer coins employing a booming economic model.
Some of you may confuse the concept of deflation in traditional finance with the concept of deflation in cryptocurrency. While deflation is a negative term in traditional finance, it is a plus in cryptocurrency. Deflation is a term used in crypto finance to describe a drop in the value of an asset due to factors such as over-minting.
The market supply of a deflationary cryptocurrency reduces with time. This means that users or the project’s team will engage in activities that reduce the coin’s quantity on the blockchain. Burning tokens is a typical approach to attaining this goal.
It’s worth remembering that cryptocurrencies with a finite supply are by definition deflationary. They reach this status because the supply of the currency decreases as long as investors buy and retain it. Bitcoin, the king coin in the crypto market with the biggest dominance to date, is an amazing illustration.
Many crypto enthusiasts believe that deflationary tokens will outsmart DeFi. Some of us may remain cautious about this factor, despite DeFi’s ability to help construct web 3.0 in the future. However, the use of deflationary token mechanisms by projects like Ethereum begs the issue of why all the hoopla. Let’s have a look at how to answer that question first.
Burning mechanisms used by platforms include buyback and burn, and transaction burning. The buyback mechanism is self-explanatory since it entails the platform purchasing tokens from holders and storing them in an inaccessible address; a platform may utilize a portion of its revenues to carry out this transaction.
When it comes to transaction fees, a platform uses a smart contract that burns a portion of the fees automatically. The quantity of transactions on a platform strongly influences this mechanism; the more transactions, the more tokens the platform burns, and vice versa.
Deflationary tokens offer a number of advantages to both investors and projects. Deflationary tokens want to fix the problems with traditional finance above anything else. Despite popular belief, deflationary tokens have a beneficial impact on the cryptocurrency market. Here are some of the ways deflationary token development can help projects:
• Appreciation in a Coin’s Value
An increase in supply causes a drop in demand, according to the fundamental law of supply and demand. Deflationary cryptocurrencies aim to reduce market supply, increase scarcity, and raise demand. You might wonder why. It is because the items that are difficult to obtain are more appealing than those that are more easily available. Using the same logic, investors are more attracted to rare coins than the ones that are plentiful. In the long run, this will increase the value of the coin.
• Increasing Profitability
Deflationary tokens have gotten a lot of attention during the recent bull run. As investors collect greater earnings, this factor directly adds to their interests. Another possibility is that a platform decides to purchase back coins from users. Those who want to short their coins will profit from the entire process leading up to the coin burning. After all is said and done, the desired outcome is a value increase after burning.
• Removal of Extras from the market
Unsold tokens in circulation are harmful to a cryptocurrency’s success. Instead of flooding the market, the deflationary mechanism assists a project in removing extra tokens from circulation. Furthermore, if tokens were distributed erroneously, it would be desirable to burn them to repair the error.
Deflationary Projects which are under Development
The teams of a token development company have developed tokens that have taken token burning too far to increase their market value over time. A few instances of deflationary tokens are listed below.
• Token Bomb
The “first self-destructing currency” has been labeled this token. This token is primarily being created as a test to see if deflationary tokens are feasible. Around 1% of the tokens traded in each transaction of the Bomb token will be burned. Bomb tokens have a total quantity of approximately 1 million, and at the current market activity rate, there will be no Bomb tokens remaining in 2034.
• Nuke Token
Nuke is an Ethereum-based token that competes with Bomb in terms of deflationary, with a 1 million token supply and a 2% burn rate. The main difference between Bomb and Nuke tokens is that with Nuke, the process of burning tokens will come to a halt once a set amount of time has passed, so these tokens will not be erased like Bomb.
Apart from these two, some of the most popular deflationary tokens built on various blockchain networks are listed below.
Token development and coin development are an essential part of Cryptoverse. If you are planning to build your deflationary coin or token, Antier Solutions can be your reliable token development company.
With a team of over 350 blockchain engineers and domain experts, we offer comprehensive token development services – from token creation and deployment to white paper creation and marketing – to help you successfully launch and market your token.
Schedule a free demo of one of our coin or token development projects or connect with our subject matter experts to share your business needs.