A deflationary token refers to a type of cryptocurrency that is designed to decrease in total supply over time. This means that as more transactions occur within the network, a portion of the tokens is burned or permanently removed from circulation. This reduction in supply aims to increase the scarcity of the token, potentially driving up its value.
Deflationary tokens are often created with the intention of combating inflation and providing holders with an incentive to hold onto their tokens for the long term. The burning mechanism can vary depending on the token’s design, such as a percentage of each transaction being burned or a specific amount being burned at regular intervals.
Investors are attracted to deflationary tokens as the decreasing supply can lead to price appreciation over time, assuming the demand for the token remains constant or increases. However, it’s essential for investors to research and understand the tokenomics of a deflationary token before investing, as the burning mechanism can have implications on liquidity and volatility.
