Deflationary Tokens: What They Are and How They Work

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. Many crypto enthusiasts believe that deflationary tokens will outsmart DeFi.