The crypto borrowing and lending platform Nexo recently provided transparency into exactly how its business makes money. Its lengthy breakdown follows the collapse of numerous high-profile crypto lending firms that were overexposed to defunct projects and businesses. Nexo’s Business Model As Nexo explained in a Twitter thread on Monday, Nexo’s primary business strategy is to facilitate collateralized credit. Its core services include crypto collateralized loans, interest-bearing crypto accounts, and spot, futures, and options trading. Through its Earn product (crypto interest…
The crypto space is rapidly expanding and in-comes different token models with different features leveraging varied mechanisms. Tokens in the crypto space are broadly categorized into either inflationary token or deflationary tokens. An inflationary token employs a unique model where tokens are added to the market after a specified period of time.
A well-demonstrated example of an inflationary token is Bitcoin, which is released at a rate of 12.5 new coins every 10 minutes as a reward to the miners for mining the next block. Not all inflationary tokens are issued via mining. For instance, Ripple (XRP) is issued by the company, which gradually sells them off to fund operations.
Deflationary tokens take a novel approach where tokens are eliminated from the market “Burned” after a given period of time. Several mechanisms are removed from the market, such as buying-back and token burns from the issuer. The major benefit of deflationary tokens is that the coins grow in value as they get burned and staked in a pool to raise their own capital and ensure liquidity.
Some concerns eliminating excess tokens make deflationary tokens less available and consequently decrease the token’s actual supply. However, this is not the case with deflationary token since they can actually be divided by 100 millionths. Thus can never be short of supply.
Nonetheless, deflationary tokens have since come under fire from regulators such as U.S Securities and Exchange Commission (SEC) as they are often viewed as security. The main issue is that the deflationary mechanism used to purchase tokens from the market is generally dependent on a company’s success. If a company is quite successful, it will be able to buy more tokens from the market, reducing the supply and making the token much successful.
On the other hand, if the company performs poorly, it will fail to buy the token’s excess supply leading to a non-functional ecosystem. In essence, deflationary tokens are often viewed as security due to the heavy link between its success and the ecosystem’s circulation. There are over 20 deflationary tokens in the crypto space with burn rate ranging from as low as 0.1% to as high as 90%. This guide will look at the top four deflationary tokens looking at their mechanism and technology behind them.
The Burn Token is a notable deflationary token in the crypto space offering deflationary capabilities at a rate of 1% of the transacted amount. The token is backed by Ethereum stored in reserves and offers full liquidity following the exchange contract. Therefore, BURN holders can sell their tokens in exchange for ETH or any other token they want.
1% of every BURN transaction( trade or transfer) is transferred to the Ethereum Genesis Wallet. The transfer eliminates the amount transacted from the total supply of BURN. This means that BURN’s supply falls with every transaction, resulting in a continuous rise in BURN’s price. BURN doesn’t have an airdrop. Instead, each BURN is traded for Ethereum, and the community is responsible for driving the price.
Regarding its technology, BURN employs Uniswap– an Ethereum-based protocol that is designed to facilitate automatic digital asset exchange between ETH and ERC20 tokens. The exchange contract holds a reserve of ETH and BURN tokens. The exchange contract also allows for direct ERC20 to BURN trades using ETH as an intermediary. Uniswap also functions to mint liquidity token to track how much each liquidity provider has contributed to the total reserves. BURN Token was introduced in the market on 24/06/2019 and traded at $0.0011494. 0.3% of all trade volume is distributed proportionally to all liquidity providers in the liquidity pool.
The BOMB Token
The BOMB Token is also an Ethereum-based deflationary token. Like BURN token, 1% of the tokens used in the transaction are destroyed. There are currently just 1 million BOMB tokens in existence, and the number is decreasing at a fast rate. There are only 1 million BOMB tokens left in existence, and it’s projected that by 2034 no BOMB tokens will have been left in existence.
BOMB Token prides itself as a “self-destructive currency” and a “social experiment” created to establish deflationary currency feasibility. BOMB has been rated as the best most successful airdrop in the crypto space running a website such as Coinmarketcap, Mercatox, and DDEX with a $ 1 million trading volume a day. BOMB seeks to be the leading deflationary token in the crypto space in the future.
Deflationary tokens have become quite prominent in the crypto space. It’s based on the premise of reducing the supply on each transaction to increase scarcity and consequently enhance the price of the token in circulation. Deflationary tokens have largely been compared to stable coins but better capabilities to combat volatility and inflation in the crypto space.
There is no doubt that deflationary tokens provide a new frontier in the crypto sector attributed to the burning practice, which stabilizes tokens or crypto market value, in turn, building a sense of confidence in investors to hold on to their tokens for long. In the future, we are expected to see more deflationary tokens launched in the crypto space accompanied by increased blockchain adoption.