Dynamic supply describes a digital asset’s total quantity that can change over time based on predefined rules or market conditions. Unlike fixed-supply assets, dynamic supply tokens or coins adjust their circulation through mechanisms such as burning, minting, or algorithmic adjustments. This feature is commonly employed in stablecoins to maintain a peg to another asset or in decentralized finance protocols to control liquidity and incentives. The design influences the asset’s economic model and price stability.
Context
The behavior of dynamic supply mechanisms is a frequent subject in crypto news, particularly concerning stablecoin stability events or changes in protocol tokenomics. Analysts often scrutinize the algorithms governing supply adjustments to assess their impact on market capitalization and asset value. Regulatory bodies are also examining dynamic supply models for potential systemic risks.
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