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Creating a Deflationary Token
A simple, practical guide to understanding and building deflationary crypto assets
CryptoExplainer5 min read·Just now--
Introduction
After exploring algorithmic stablecoins, today we look at another popular design pattern in the crypto space: deflationary tokens. While stablecoins aim to keep a constant price, deflationary tokens take a very different approach: they try to increase value over time by reducing supply.
At first glance, this sounds simple — just burn tokens and price goes up. But, as with many things in crypto, the reality is more nuanced. In this post, we’ll build a minimal deflationary token, understand the underlying mechanics, and discuss where this approach works — and where it doesn’t.
What is a Deflationary Token?
A deflationary token is a cryptocurrency for which the total supply decreases over time. This is achieved by burning tokens.
There are several different options how and when can this be done. One common approach is to destroy tokens for every transaction — think of a fee or tax. Other tokens pursue manual burning, e.g. for specific events or following a periodic schedule. One prominent example is BNB with its auto-burn feature.
