An inflationary vs. deflationary token model refers to how the total supply of a cryptocurrency changes over time — whether it increases (inflationary) or decreases (deflationary) — and how that affects value, utility, and incentives in the ecosystem
🔺 Inflationary Token Model
Definition:
The total supply increases over time.
How:
New tokens are regularly created (minted) through mechanisms like block rewards, staking rewards, or fixed issuance schedules.
Examples:
- Ethereum (ETH) – After The Merge, ETH is less inflationary, but still not fully deflationary.
- Dogecoin (DOGE) – Has no maximum supply and issues 5B DOGE per year.
Purpose:
- Incentivize participation (e.g., mining, staking)
- Support ecosystem growth
Risks:
- Dilution of existing holders if demand doesn’t grow equally
- Can put downward pressure on price
🔻 Deflationary Token Model
Definition:
The total supply decreases or grows very slowly.
How:
Tokens are burned (permanently destroyed), or there's a capped supply (like Bitcoin), and no new tokens are issued after a certain point.
Examples:
- Bitcoin (BTC) – Max supply of 21 million; issuance slows over time (halving events).
- BNB – Binance burns BNB tokens regularly.
- Shiba Inu (SHIB) – Has a burn mechanism to reduce supply.
Purpose:
Increase scarcity → potentially increase value
Reward long-term holders
Risks:
Overly deflationary systems may discourage spending (people hoard tokens)
🔁 Hybrid Models
Some tokens mix both inflationary and deflationary features.
Example:
- Frax (FRAX) or Terra 2.0 – Use algorithms to expand or contract supply depending on demand.
