Deflationary crypto coins are cryptocurrencies that employ a specific tokenomics model that ensures the growth of the value of tokens over time. The economic theory of supply and demand is put into practice when developing cryptocurrency tokenomics to ensure sustainable growth of crypto asset value over time.
A deflationary token model is a model that is designed to reduce the overall supply of the tokens to the market with time. The reduction in supply is expected to drive up demand for more tokens which essentially results in the growth of the value of the token.
Since token holders always want the crypto token price to grow, deflationary cryptocurrencies have continued to grow and gain significant attention from crypto enthusiasts. It is critical to note that the deflationary tokens list is made up of some of the household names in the industry.
So, should a deflationary crypto coin be a good pick for investment in 2022? Let’s look at some of these so-called deflationary coins.
Although there are several deflationary crypto tokens, there are several various deflationary models used by different blockchain ecosystems. Despite the differences, the fundamental concept of creating scarcity to increase supply is undoubtedly common among all deflationary cryptocurrencies. The deflationary models often differ in how scarcity is created within the token’s ecosystem, so as to drive up the demand and value of the token.
The most common deflationary model involves the burning of existing tokens to reduce their circulating supply. However, other methods such as creating tokens with a fixed total supply, taxing transactions within the network using the native token as the only mode of payment, and buying back tokens are also options that qualify as deflationary. So, what exactly constitutes a deflationary coin, and what coins can be included in the robust list of deflationary crypto assets?
What are Deflationary Cryptocurrencies?
Deflationary cryptocurrencies are designed to have a declining supply pattern over their lifetime. The idea is to regulate the influx of digital assets on the crypto market. With the introduction of digital assets and cryptocurrencies in general, there have been several innovations that have led to the creation of over 20,000 crypto coins listed on the coin market cap platform.
The deflationary crypto model aims to reduce the necessary influx of digital assets as the prices continue to grow. Although there are several deflationary crypto models in the market, there are two primary deflationary crypto models in the market. They are;
Buy-back and burn
The buy-back and burn deflationary model is the most popular deflationary crypto model in the market. Essentially when the digital assets are launched, the tokens are released in bulk quantities to facilitate redistribution. However, over time, the parent company buys back some of the tokens and sends them to a dead address to drive up demand by reducing the number of tokens in the circulating supply. This strategy allows token holders to gain value since the tokens they are holding will increase value after the burn. BNB from Binance is a fantastic example of a buy-back and burn deflationary cryptocurrency.
Burn on transactions
Burn-on transactions are another example of a deflationary crypto model that essentially burns tokens on-transactional basis. The innovative deflationary model only burns crypto coins whenever transactions occur on the blockchain. When the token’s daily trading volumes continue to rise, the value of the crypto asset rises automatically since a percentage is burned every time a transaction happens on-chain. SAFEMOON is a great example of a crypto coin that utilizes the burn-on transaction deflationary model.
Below is a list of the most popular deflationary tokens in no specific order. Deflationary tokens are essentially aimed at achieving profit maximization by manipulating supply and demand balance.
Criteria for a Deflationary Coin Model
The following are considerations for a deflationary coin’s tokenomics:
Is the contract completely unchangeable, or is it flexible and can be amended at any time?
Crypto enthusiasts adore fully decentralized dApps (and tokens) that don’t have admin keys that give the contract backdoor access. After all, decentralization is at the core of blockchain technology. Consider designing a token for a closed community, such as a collection of clinics. In that situation, a solution like this is perfectly reasonable.
Does the crypto token have any extra features, such as staking?
Consumers that hold crypto tokens in their wallets may exhibit odd behavior. This could be done by burning all staked tokens, which would take them out of the current liquidity pool and let the interest on them be used to create new currencies.
Are any token recovery features required?
People may accidentally find your smart contract’s address and send their crypto (which the contract may or may not support) to it. Typically, these tokers are lost forever. To avoid such mishaps, you may want to include a workaround in your smart contract. The most important thing to consider is how you want your smart contract to behave and what it will do to bring additional clients to your dApp ecosystem.
From the above perspective, here are our top picks for a deflationary crypto coin.
Bitcoin is a fixed supply cryptocurrency, in that there is only 21 million Bitcoin available to mine. When miners mine the last Bitcoin, there will be no further rewards for miners and the token will have achieved a fixed supply. The finite supply of Bitcoin creates a special form of a deflationary model. As the demand for Bitcoin continues to grow, the supply reduces over time until the 21 st Bitcoin is mined. The deflationary model will ensure that the Bitcoin price increase in value after the total supply is depleted. The continued trading activity with Bitcoin will therefore lead to an increase in prices over time with minimal possibilities of the price declining.
Binance Coin (BNB)
The Binance coin – known as BNB is another deflationary token using the buy-back and burn deflationary model. BNB coins are the native digital tokens of the Binance network. Their deflationary model involves buying back BNB coins from crypto investors and transferring the tokens to a dead address. Binance networks have been religiously faithful to burning the BNB coins, although minimal changes have been witnessed in the price of BNB tokens.
The current BNB coin has a circulating supply of 161,337,261 BNB coins, while it was launched the BNB coins had a circulating supply of 200,000,000 BNB coins.
Although the current BNB price has undergone several price fluctuations due to the overall crypto market volatility, the deflationary model used by BNB is effective and will undoubtedly result in the price increase of the cryptocurrency over time.
The Litecoin token also uses a deflationary model just like Bitcoin. The Litecoin cryptocurrency is a bitcoin fork, meaning it shares several similarities with Bitcoin. The LTC token is deflationary since it has a fixed supply amount of 84 million tokens. As the mining of LTC continues, the supply decreases over time, creating a deflationary model that ensures the demand remains constant or increases as the supply decreases over time.
The Polygon is a unique deflationary token compared to the others discussed above. The Polygon platform utilizes a unique mechanism that burns a percentage of the transaction costs for every block within its ecosystem. Polygon’s whitepaper, claims that the constant burning of a portion of the total transaction fees helps maintain the overall value of its native digital token, MATIC. Although it does not employ the above-discussed deflationary models directly, MATIC still qualifies as a deflationary token.
As earlier mentioned, there are several deflationary models used today. Since there are more than 20,000 cryptocurrencies, several deflationary methods have been devices to achieve the same goal. The CAKE token is the native governance token on the Decentralized Finance platform, PancakeSwap.
The Pancakeswap platform incorporates a deflationary system that automatically reduces the supply of CAKE tokens by every day, making it a deflationary token. The unlimited supply of CAKE tokens also makes its inflationary tokens.
There are tokens that can possess both inflationary and deflationary characteristics like the SOL token. Solana is both inflationary and deflationary. Solana is considered an inflationary token since the token has an infinite supply. However, the Solana token also employs a deflationary mechanism by charging transaction fees that are paid in SOL tokens to maintain the value of SOL tokens.
Additionally, the Solana ecosystem regularly burns the SOL coins to sustain the value of its governance token. There are several ways a crypto coin can qualify as a deflationary token, and burning of the tokens is one of the proven ways since it regularly reduces the supply of SOL tokens that subsequently drives up the demand and value of the Solana.
The Tron network is one of the largest blockchain networks that have gained popularity over recent years. The TRX token is the native digital token used in the Tron network, a blockchain network widely known for its solid support for decentralization. In 2021, the TRX tokenomics was switched from the popular inflationary model to the deflationary model that it uses to date. The change came after the Tron community suggested the benefits of transitioning from an inflationary to a deflationary token system. The transition made TRX the first token to make the change, in 2021.
The Ripple platform has undergone several legal complications that have affected the general growth of cryptocurrency. The deflationary token also employs a unique deflationary model that allows it to maintain the value of the XRP token. When XRP tokens are mined, miners have to pay transaction fees for each transaction on the platform.
The uniqueness of Ripple’s deflationary model comes from how it handles the transaction fees paid during the mining process. The deflationary model burns all the transition fees collected, unlike other platforms that issue the tokens as a reward to miners.
Similar to Bitcoin and Litecoin, Terra’s LUNA coin is a deflationary token with a finite amount of tokens set to 1 billion. The token is therefore deflationary in that it limits the number of tokens in circulation over time. The native token on Terra Network’s total supply of 1 billion was released at launch and the circulating supply continues to reduce with time.
The CRO token is the native digital token of the Crypto.com platform. one of the most aggressive crypto platforms with an aggressive marketing campaign in the past few months.
Before the launch, the platform burned nearly 70 billion tokens which were estimated to be worth $10 million at the time. The total supply of the tokens is locked by smart contracts on the platform that is scheduled to be burned monthly making it a deflationary token.
Bitcoin Cash (BCH)
Bitcoin cash is a deflationary token, with a maximum supply of 21,000,000 coins. The tokens are regularly burned which has led to the increase in the price of the BCH tokens. The Bitcoin cash halves the miners’ rewards after every four years which ensures the circulating supply making it a deflationary token.
The Filecoin blockchain’s native token is the FIL token. The Filecoin blockchain network is unique in that it is an open-source platform that allows for the decentralized storage of files within its network.
There are several criteria to determine deflationary tokens. FIL token makes the list of deflationary tokens simply because it has a fixed supply of 2 billion tokens.
Ethereum Classic (ETC)
The ETC token also makes the list of deflationary tokens since it has a unique deflationary model. For mining ETC tokens, the platform has 5 ETC as the initial block reward for miners on the platform. The deflationary model of ETC is meant to decrease the block rewards by 20% after every 5 million blocks mined. Approximation shows that 5 million ETC blocks could be mined after an estimated period of 2.5 years.
FTX Token (FTT)
The FTX token is the native digital token used in the FTX central exchange platform. The centralized exchange platform has grown incredibly over the years, renowned for providing affordable trading fees to its users. The FTX Token has a ticker symbol of FTT and is considered a deflationary token.
The FTT coin is deflationary because it is used on the FTX centralized exchange by traders to pay fees. Additionally, the token’s supply decreases with time, which progressively increases the demand for the token, making FTT a deflationary token.
Safe moon (SAFEMOON)
The Safemoon platform employs a specific deflationary model that has been explained above. Among the common deflationary mechanisms available today, the Safemoon token utilizes the burn-on transaction method. The burn on-chain transactions on Safemoon charge a 10% rate on transactions within its platform.
The 10% tax charged on the Safemoon platform is re-distributed to care for deflation. Approximately 2.5% of the total tax charge is burned, through a smart contract that sells the tokens into BNB. The transactions are equivalent to burning the tokens making the SAFEMOON coin a deflationary token.
Designing your own Deflationary Token
As we have seen from the examples of deflationary models, the number of coins in circulation reduces, and the value of each coin increases. Deflationary cryptocurrencies have a maximum supply cap that cannot be changed. Now, if you want to make a cryptocurrency token that has a lot of features and is tightly connected to a dApp ecosystem, you’ll need to hire a skilled token development team. But the general steps can be outlined below.
- Step 1 – Decide on the blockchain
- Step 2 – Define the properties of your token
- Step 3 – Develop a Smart Contract
- Step 4 – Deployment on the blockchain
Deflationary cryptocurrencies provide significant value for deflationary token holders. The tokenomics however vary based on the token. The underlying principle for all deflationary crypto coins is that there is a reduction in supply, reward, or fixed supply of tokens over time. While deflation is a negative in traditional finance, it turns out to be a positive thing in the crypto market.
Despite the differences in how deflationary tokens achieve the deflationary status, be it by coin burn mechanism, taxing the transaction fees, reducing the reward for miners, or having a fixed supply for the token, these strategies achieve the desired results making these tokens qualify as deflationary cryptocurrency tokens.