Deflationary Models describe economic structures within cryptocurrency protocols designed to reduce the total supply of a digital asset over time, thereby increasing its scarcity and potentially its unit value. This mechanism counteracts inflationary pressures inherent in some monetary systems.
Mechanism
These models typically incorporate token burning mechanisms, where a portion of transaction fees or a scheduled amount of tokens is permanently removed from circulation. Other methods include dynamic supply adjustments based on network activity or fixed supply limits without further issuance, codified within the protocol’s smart contracts.
Methodology
The strategic intent is to incentivize holding and mitigate inflationary pressures, thereby aligning token economics with long-term value preservation for investors. This approach aims to create a disinflationary or truly deflationary asset, contrasting with traditional fiat systems susceptible to continuous supply expansion and purchasing power erosion.
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