Table of Contents
A deflationary coin means a cryptocurrency increases in value over time as its circulating supply decreases. Using a burning mechanism, deflationary coins permanently remove a part of their circulating supply from circulation.
Simply put, token burning means the development team sends some coins to a wallet address that can’t be used by anyone, i.e., by sending the tokens to that address, the tokens go out of circulation.
If there is not a lot of a certain cryptocurrency (if it’s scarce), it gets more valuable. Burning decreases the total supply of the coin, meaning that the remaining coins are more scarce and, therefore, have a higher value.
This mechanism has been developed to incentivise users to hold their coins for longer periods as they increase in value over time.
In addition to the deflationary coins explained above, some tokens are hyper-deflationary; let’s see what they are and how they differ from deflationary ones.
Hyper-deflationary tokens have an extreme deflation rate, i.e., their circulating supply decreases swiftly over time. Hyper-deflationary tokens use various mechanisms like token burning, redistribution, and liquidity locking.
As mentioned above, in token burning, some of the coins are sent to an unspendable address, i.e., these tokens go out of circulation forever, and the remaining ones go up in scarcity and value.
In a redistribution mechanism, a tiny percentage of each transaction is redistributed to the current token holders to incentivise them to hold their tokens longer as they’ll be rewarded more tokens over time.
Hyper-deflationary tokens use the liquidity locking mechanism to lock some of the token's liquidity in a smart contract to stop its trading, add to its scarcity and boost its value.
All in all, hyper-deflationary tokens are considered high-risk, high-reward investments. But does it mean inflationary tokens are not good? To answer this question, we need to learn what inflationary cryptocurrencies are.
As opposed to deflationary coins, inflationary crypto is referred to cryptocurrency that increases in circulating supply over time. Inflationary coins increase supply through the minting mechanism, which creates new tokens at a predetermined rate.
The most famous example of an inflationary cryptocurrency is Ethereum, with an annual inflation rate of about 4-5%, i.e., Ethereum’s supply goes up by 4-5% each year, which can result in its value dilution over time.
Inflationary cryptocurrencies follow a more traditional system of currency issuance, like how central banks increase the money supply in the economy, but we can’t say inflationary tokens are bad.
Supporters of inflationary cryptocurrencies claim that a supply increase can boost the stability of the currency's value, making it a better option in everyday transactions.
However, objectors of inflationary cryptocurrencies believe that minting cryptocurrencies constantly can result in that currency’s value dropping over time and even hyperinflation.
Also, it’s not lucrative to keep inflationary cryptocurrencies for a long time since their value can decrease over time.
If you still have questions about deflationary and inflationary cryptocurrencies, keep scrolling!
What makes deflationary and inflationary cryptocurrencies different is their supply management system over time.
Deflationary cryptocurrencies get more scarce over time by token burning and other supply-reducing mechanisms, which can add to their value over time.
Inflationary cryptocurrencies get more abundant over time due to mechanisms like minting or mining new coins/ tokens, which can result in their value decrease over time.
The following table depicts the main differences between deflationary and inflationary cryptocurrencies.
Considering the above differences, can we say deflationary coins are good? The following section will tell us.
The answer to the question if deflationary coins are good or not depends on your specific preferences, priorities and goals.
The main advantage of deflationary coins is that their supply decreases over time, meaning that they become more scarce and valuable over time. It is especially juicy for long-term investors.
Deflationary coins cannot be the first option for all investors, as their price is prone to extreme volatility and can be subject to extreme price volatility and are not suitable for daily transactions.
Also, deflationary coins’ value can be affected by market demand, competition, and regulatory issues. Furthermore, some argue that because of extreme scarcity, the deflationary coin is not an ideal currency or a means of exchange as its value can be too high for daily transactions.
All in all, deciding if deflationary coins are good depends on your priorities, goals, risk tolerance, and investment strategy. If you choose to invest in deflationary coins, keep scrolling to learn about the ten best deflationary crypto coins.
Here are the best deflationary crypto coins, and we’ll elaborate on each one in the following subsections.
The first and most famous cryptocurrency, Bitcoin, comes with a limited supply of 21 million coins and uses a Proof-of-Work (PoW) consensus mechanism.
Bitcoin's value is highly volatile and is affected by many market factors, but it is widely accepted and supported by a huge community.
Bitcoin’s burning mechanism is known as Bitcoin Halving. Almost every four years, the number of Bitcoins given to miners is cut in half to decrease inflation and provide a deflationary system.
The second-largest cryptocurrency by market capitalisation is Ethereum, with a circulating supply of over 115 million coins.
Ethereum follows a fee-burning mechanism to keep ETH deflationary. This new fee-burning mechanism (previously known as EIP-1559) changes the method of calculating transaction fees (aka Ethereum gas fee).
Ethereum started burning (removing ETH from circulation) a portion of every transaction fee to decelerate the rate of issuing new ETHs.
In other words, every new transaction on the Ethereum blockchain reduces the total supply of ETH coins.
The rest of the coins follow the usual supply and demand routine. If supply decreases over time following this new burning mechanism, the price of Ethereum can increase, which is good news for investors.
This new burning mechanism has been made available thanks to Ethereum’s upgrade to the PoS consensus algorithm.
Binance Coin, the native token of the Binance exchange, is used for discounted trading fees and other platform features. Its limited supply is 170 million coins, and it has a regular burning mechanism to decrease supply and increase value.
As part of the BNB coin burning mechanism, a portion of the Binance exchange’s profits is used to buy back and destroy BNB tokens.
It happens every quarter to about 20% of the profit until 100 million BNB tokens are burned, i.e., the max supply of BNB.
The total trading volume of the Binance exchange in the previous quarter regulates the number of BNB tokens that must be burned in the following quarter.
As a decentralised oracle network, Chainlink provides real-world data for smart contracts. Chainlink has a limited supply of 1 billion coins, a part of which is used for staking and network fees.
In other words, Chainlink uses a staking mechanism to incentivise holders to keep the tokens longer instead of burning the LINK tokens to decrease the supply and increase the tokens’ value.
Although Chainlink does not have a common burning mechanism, its staking mechanism aims to decrease the number of LINK tokens available and increase demand for the remaining tokens.
Chainlink team believes that this decision can lead to the LINK token’s price rise over time and encourage the long-term holding of its tokens.
SafeMoon is another deflationary coin that has increased in popularity for its unique tokenomics, which include a 10% fee on transactions. This fee is divided between token holders and liquidity providers.
SafeMoon uses two methods, i.e., token burning and redistribution mechanisms, to reduce the supply decreases over time.
Safemoon cuts a percentage of each transaction fee and burns it permanently using a smart contract programmed to deduct a 10% fee on every transaction of the Safemoon platform.
The reduced 10% is cut in half, i.e., 5% goes to existing Safemoon holders to incentivise them to hold the tokens longer. 2.5% of the second half is used in the liquidity pool, and the rest is burned.
Although Safemoon uses this method for good reasons, some argue it won’t be a successful long-term plan.
Another decentralised platform specialised in cross-border payments and asset transfers is Stellar, whose value is influenced by adoption and market demand.
Stellar's supply increases at a fixed rate of 1% per year, but this rate can be changed based on community consensus.
Like Ethereum, Stellar follows a fee-burning method to decrease the supply of its native token XLM.
The fees collected from every transaction executed on the Stellar platform are sent to a fee pool to accumulate over time. Some of these fees are burned, i.e., sent to an address without known private keys, to decrease the supply over time.
The size of the fee polo determines the number of XLM tokens that must be burned.
Brave browser has released Basic Attention Token as its native cryptocurrency, which aims to provide a more privacy-focused and ad-free browsing experience.
BAT is used to reward and incentive users in the Brave ecosystem, with a limited supply of 1.5 billion coins.
The BAT burning mechanism occurs in four steps as follows.
Polygon is a layer-2 scaling solution for Ethereum designed to improve scalability and minimise transaction costs. Adoption and usage are two important factors affecting Polygon's value. Its supply is managed to go up at a fixed rate of 13.9% per year.
Polygon network transaction fees are sent to a burn address with an unknown private key to go out of circulation. The volume of the transactions and the current price of MATIC tokens are the two main factors determining the number of tokens to be burned to decrease the supply and increase the value over time.
Tezos is a self-amending blockchain platform enabling decentralised governance and smart contract functionality. The value of Tezos is influenced by adoption and market demand. Its supply is planned to go higher at a fixed rate of 5.5% annually.
Tezos’s method of validating transactions and securing the network is called baking. Bakers hold the XTZ tokens and lock them up for collateral, which is how they validate transactions and add new blocks.
Bakers who succeed in validating a block receive some Tezos tokens and a portion of transaction fees as rewards.
Bakers need to burn some of this reward by sending a portion of it to a burn address.
Similar to other tokens mentioned above, Tezos determines the number of tokens to be burned based on the transaction volume and the current price of the XTZ tokens.
Prioritising security and sustainability, Cardano is a decentralised blockchain platform for developing Decentralised Applications (dApps). Adoption and market demand influence ADA’s market value, and its supply is intended to rise at a fixed rate of 3.7% per year.
Cardano uses a PoS consensus mechanism to let users delegate their ADA tokens to stake pool operators to validate transactions and earn rewards.
A portion of the reward received by the operators is automatically deducted as a pool margin fee, which is used to pay the operators’ operational costs.
The rest of the reward goes to users who delegated their ADA tokens to the stake pool, depending on the amount of ADA they have delegated. Using this reward method results in decreasing the supply of ADA tokens.
The above list introduces the ten best deflationary crypto coins, but what follows is the list of the best deflationary meme coins to give you a broader range to choose from.
It’s no secret that investing in meme coins includes high volatility, and their popularity can be influenced more by social media trends than fundamental factors. That being said, let’s learn about some of the most popular deflationary meme coins.
Dogecoin is a popular meme coin with an active community of fans and supporters. DOGE has an uncapped and inflationary supply, but its low transaction fees make it accepted by traders worldwide.
Dogecoin does not have a traditional burn mechanism. Its total supply is 129 billion, and no mechanism is used to decrease this supply over time.
But to increase demand, Dogecoin uses its community support, which has been successful, as Dogecoin has gained an eye-catching number of active followers.
Aimed to be a Dogecoin killer, Shiba Inu is a deflationary coin with a limited supply of 1 quadrillion tokens.
Its been active on social media and has gained popularity for good marketing strategies and partnerships with other projects. Shiba Inu coin burn happens using the ShibBurn mechanism.
Shiba Inu automatically burns some of the collected SHIB transaction fees. The transaction volume and current SHIB price decide how many SHIB tokens must burn each time.
Akita Inu is another deflationary meme coin like Shiba Inu, with a limited supply of 1 quadrillion tokens. AKITA’s burn mechanism is similar to Shiba Inu’s.
As a deflationary token, Hoge Finance aims to provide a fair and more transparent financial ecosystem. A token burning mechanism, similar to what Akita Inu does, is used to decrease its supply over time.
The present article answered the question, “What Is Deflationary Crypto?” and introduced the best deflationary crypto coins for 2023. Deflationary coins are created to increase the scarcity and value of digital assets.
With their growth potential in the coming years, the best deflationary coins can be juicy investment options for both experienced and novice crypto investors.
But don’t forget that you need to evaluate your options, set your priorities, check Cryptologist and consult a financial advisor before making investment decisions in the crypto sphere.
In what follows, you can find answers to the most frequently asked questions about the best deflationary coins for 2023.
Yes, Bitcoin is a deflationary cryptocurrency with a fixed supply of 21 million BTC.
Yes, Shiba Inu is a deflationary token with a limited supply of one quadrillion tokens.
Yes, Enjin is a deflationary token with a limited supply of 1 billion ENJ tokens.
We don’t have similar projects