Deflationary describes an economic property where the total supply of a digital asset decreases over time. This reduction in supply can be achieved through mechanisms like token burning, where tokens are permanently removed from circulation. The intended outcome is to potentially increase the scarcity and, consequently, the value of the remaining tokens. This contrasts with inflationary models where supply expands.
Context
News reports frequently analyze the tokenomics of cryptocurrencies exhibiting deflationary characteristics, assessing their long-term price trajectory. Discussions often revolve around the effectiveness of burning mechanisms in driving scarcity and the potential impact on market dynamics. Regulatory bodies may also scrutinize deflationary models for their potential to create artificial scarcity or manipulate asset values.
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