Definition ∞ Tokenomics deflation refers to a design characteristic within a cryptocurrency’s economic model that systematically reduces the total supply of tokens over time. This reduction is typically achieved through mechanisms like transaction fee burning, buybacks, or other supply-reducing events. The aim is to increase the scarcity and potentially the value of the remaining tokens.
Context ∞ Projects implementing tokenomics deflation often seek to create upward price pressure by limiting supply while demand remains constant or increases. Ethereum’s EIP-1559, which burns a portion of transaction fees, serves as a prominent example of deflationary tokenomics. The effectiveness and long-term sustainability of deflationary models are continuous topics of discussion in the digital asset space.
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