A pill of knowledge about what deflation tokens are, what the process of deflation of a given cryptocurrency looks like, together with a comparison of two opposing forces — inflation and deflation.
Description of the deflationary process
In a nutshell, cryptocurrencies whose supply in the market is constantly decreasing, to a pre-determined and contracted amount are called deflationary cryptocurrencies. The deflationary system for cryptocurrencies is completely different from deflation in the strict economic (traditional) sense. In the prevailing conditions of deflation in traditional markets for the same amount expressed in fiat money, after a while you can buy more goods or services offered — this, of course, is directly related to the increase in the purchasing power of fiat money. In the world of cryptocurrencies, in turn, deflation is subject to token or coin, and their value will fundamentally increase relative to national currencies.
In the case of deflationary cryptocurrencies, the constitutional premise is to gradually reduce the existing number of available tokens by eliminating them from the market in a process that is generally called token burning. Such a state of affairs, in essence, will lead to an increase in the valuation of tokens while reducing their amount. It should be added here that burning tokens does not destroy them in the literal sense of the word, but only permanently prevents their use in the future. Burned tokens are placed in a special public wallet, which is called “eater address”. The status of tokens contained in this wallet is published on the blockchain network, and all tokens contained in it, as already mentioned, are permanently blocked. The elimination process can be achieved through the following actions:
- burning a certain percentage of available tokens,
- purchase tokens and then burn them, or block them
- removing tokens from circulation by placing them on special platforms for this purpose.
Inflation vs deflation in the cryptocurrency market
Deflationary cryptocurrencies are gaining more and more interest in the blockchain architecture mainly thanks to one of its biggest advantages, which is undoubtedly maximizing their value by increasing the valuation of tokens in proportion to the decrease in their amount in circulation (circulating supply).
It should also be borne in mind that most of the cryptocurrencies currently available today, however, were built on the basis of an inflationary structure, i.e. the number of tokens/coins in advance has been set at the maximum level and is marketed in different ways until this level is obtained (e.g. BTC) or the number of tokens/coins has not been predetermined and can be marketed indefinitely (e.g. ETH).
As can be seen from the above, in the cryptocurrency market, we can find tokens/coins created based on both the inflation and deflation system. Both of these forms work independently of each other and are ubiquitous in the blockchain ecosystem. The price of cryptocurrency assets from both the inflation and deflation system has been growing continuously in the long term. The price of deflationary tokens accelerates during the buy-backs and burns process while inflationary tokens increase their value, incl. due to halving. From the economic point of view, when the amount of given assets on the market decreases, the demand for them increases — so it can be concluded that an extremely constructed deflation for deflationary tokens will certainly have an impact on increasing their price.
The innovation of deflation tokens
Deflationary cryptocurrencies are a relatively new creation, and the innovative approach to managing these assets further enhances their interest in the growing number of people operating in the blockchain sphere.
The deflationary structure is a direct response to the inflationary model, which operates in all the capital/conventional markets known to us. In the inflationary structure, fiat currencies are deliberately “printed”, as it turns out today in completely uncontrolled quantities so that central banks have a direct impact on increasing the supply of money and its further devaluation, which, moreover, they have been doing for a long time (it is enough to overexpose the consumption model and the change in the value of the US dollar over the last 100 years).
This model causes money to be devalued and lose its purchasing power. This is the case in an economy with free movement of cash and allowing it to be spent. Noting the difficulties associated with inflation, alternative forms of preservation of the value of assets began to be developed — first in traditional markets (e.g. in the form of share and gold or silver), and in order to eventually carry out a real revolution and create a system independent of large corporations and banks, which are cryptocurrencies and related cryptocurrency markets.
- With collateral — covering its value,
- With the system of repurchase and burning of BSKT tokens.
1. A fee of 2% of the value of each transaction will be taken from the transfer — half is burned out, the other half goes to the staking/reward redistribution pool which indeed speeds up the process of reducing supply. Smart Contract itself assumes that a total of 90% of all BSKT will be burned -> supply will decrease from 21,000,000 to 2,100,000
2. The BSKT token is secured with a basket of seven cryptocurrencies that cover its value. The security so adopted is intended to ensure a constant and stable increase in the value of tokens. Thanks to the correct match of coins in our basket, its value is less susceptible to fluctuations appearing in the cryptocurrency market. The BSKT token security chart looks like this:
- Bitcoin (BTC) — responsible for 25% of the value of the coverage,
- Ethereum (ETH) — responsible for 25% of the coverage value,
- Polkadot (DOT) — responsible for 10% of the coverage value,
- Smartkey (SKEY) — responsible for 10% of the coverage value,
- YfDAI.finance (YF-DAI) — responsible for 10% of the coverage value,
- USD Coin (USDC) — responsible for 10% of the coverage value,
- Basketcoin (BSKT) — responsible for 10% of the coverage value.
3. All listed cryptocurrencies that make up the BSKT basket will be used to generate additional profits on platforms such as:
- Crypto.com (profits of 3%-12% APR),
- YF-DAI (profits up to 72% APR),
- Swissborg (profits up to 20% APR),
- and other decentralized profit-generating platforms in DeFi format.
Revenues from these platforms will be used in the repurchase process for the redemption and burning of BSKT tokens, contributing to a significant reduction in supply on the secondary market. 90% of the above profits will be used for repurchase and burnout, while the remaining 10% will be used for ongoing and necessary expenses related