Crypto assets with a deflationary model refer to cryptocurrencies that gradually reduce their circulation supply, ensuring scarcity and higher value. Long-term investors usually seek these characteristics. A deflationary model also guarantees the digital finance industry will be balanced with crypto assets over time. In contrast, inflationary crypto assets increase their circulating supply over time through a minting or mining mechanism.
This article lists the top 5 deflationary crypto assets you might consider adding to your portfolio.
How Do Crypto Deflationary Models Work?
As explained above, a deflationary model ensures a crypto asset’s circulating supply decreases over time, leading to a growth in price. Most deflationary crypto assets implement a burning mechanism to remove part of their circulating supply from circulation permanently. To burn crypto assets, the development team sends tokens to a wallet address nobody can use. This way, users are incentivized to hold their tokens or coins for longer as they will get more valuable over time.
Other cryptocurrencies are hyper-deflationary, having an extreme deflation rate. In this case, the circulating supply decreases with great speed over time. To achieve an extreme deflation rate, a crypto asset can use various mechanisms, such as token burning (explained above), redistribution, and liquidity locking.
Redistribution refers to giving token holders a small percentage of each transaction to incentivize them to hold their assets for an extended period. For its part, in a liquidity locking mechanism, some of the token’s liquidity is locked in a smart contract. This way, token trading is prevented, generating scarcity and boosting the token’s price. Hyper-deflationary crypto assets can be high-reward investments, but they are also high-risk.
The Best Deflationary Crypto Assets
1. Binance Coin (BNB)
Binance Coin (BNB) is the native cryptocurrency of the largest exchange platform in the world, Binance. This coin is primarily used for discounted trading fees on the platform. Binance periodically burns BNB coins to reduce circulation supply and sustain the value of this digital asset. There was an initial maximum supply of 200 million BNB in 2017, and Binance aims to reduce the total supply to only 100 million BNB. To do so, Binance implements two coin-burning mechanisms.
The first one consists of burning a portion of the tokens spent on transactions. The second one is performed quarterly. Binance calculates the number of tokens to burn using a formula that considers the total number of blocks produced on the Binance Smart Chain (BSC). The formula also considers the BNB average dollar-denominated price during the quarter.
2. Chainlink (LINK)
Chainlink is a decentralized oracle providing off-chain data for smart contracts. The Chainlink network comprises a large open-source community of data providers, node operators, smart contract developers, and more. Chainlink has a limited maximum supply of 1 billion LINK coins. Chainlink implements a staking mechanism that decreases the circulating supply and boosts the LINK price to incentivize users to hold their LINK coins.
3. SafeMoon (SAFEMOON)
SafeMoon (SAFEMOON) is a deflationary cryptocurrency implementing token-burning and redistribution mechanisms. A smart contract deducts a 10% fee on every transaction on the SafeMoon platform. Of this deduction, 5% is redistributed among SAFEMOON holders to incentivize them to keep their coins. Another 2.5% is sent to a liquidity pool, and the rest is burned. There is a maximum supply of one quadrillion SAFEMOON coins.
4. Stellar (XLM)
Stellar is a decentralized platform enabling peer-to-peer (P2P) cross-border payments and asset transfers. The platform’s digital asset, XLM, is used as an intermediate currency for operations. It is also used to pay transaction fees. Even though the XLM supply increases at a fixed rate of 1% annually, the platform implements a fee-burning mechanism. The collected transaction fees are sent to a fee pool. After some time, some of these fees are burned to decrease the circulating supply.
5. Basic Attention Token (BAT)
The Basic Attention Token (BAT) and the Brave browser aim to revolutionize the advertising industry. Advertisers can buy advertising space using BAT tokens. Users can watch ads on the Brave browser and receive BAT rewards for their attention. These rewards are a portion of the payments from advertisers. The remaining part of the payments from advertisers is sent to a so-called growth pool managed by the development team. Some tokens in this pool are burnt periodically to decrease the BAT circulating supply. There is a maximum supply of 1.5 billion BAT.
Conclusion
A crypto asset with a deflationary model decreases its circulating supply over time. By reducing their supply, the price of the said asset usually increases. These assets contrast inflationary cryptocurrencies, which get more abundant over time, often resulting in a decrease in value. So, which type of crypto asset is better? It depends on your preferences, investment strategy, risk tolerance, and other factors. Deflationary crypto assets are more suitable for long-term investments as they become more valuable over time. However, they usually suffer from extreme price volatility, which renders them impractical for daily transactions. If you want to invest in deflationary crypto assets, you can use LetsExchange.io to purchase the above crypto assets and more than 3,700 other cryptocurrencies.
Disclaimer
Please keep in mind that the above information is based exclusively on our observations and is provided for informational purposes only. It doesn’t constitute any kind of financial advice nor represents an official forecast. Cryptocurrency is a highly volatile asset, and you are investing in it at your own risk.