How are crypto projects coping with inflation?

How are crypto projects coping with inflation?

by Minto

Let's break down the ways to lower the available liquidity of tokens on the market that have been invented over the last couple of years:

  1. Token burning. The easiest way to remove excess tokens from free circulation is to burn them. This can be naturally implemented within the blockchain, such as is currently the case with Ethereum. Blockchain transaction fees burn more Ethereum than the staking brings in. This automatically makes the tokens of a given blockchain deflationary. You can also include burning BNB here. However, this token withdrawal mechanism has slightly different mechanics. There are also projects that take available tokens off the market in more artificial ways and burn them manually. This is a less common mechanic, but no less effective. As a rule, each token burning lowers the available supply of tokens on the market, so the price usually rises.
  2. Blocking funds in staking. One of the more interesting options for reducing the free supply of tokens on the market is blocking funds. One of the most common ways is to put them into staking with blocking for a certain predetermined period of time. Here, the lock-in period varies depending on the protocol. In most cases, they offer a reward or some sort of privilege for doing so. For example, Curve allows you to lock CRV tokens for up to 4 years in order to get veCRVs that allow voting and thus increase the reward from commissions for providing liquidity. There are also examples where the protocol allows you to completely block your tokens permanently - e.g, Olympus. In return, you get a certain percentage of yield for an indefinite period of time. This is a pretty radical way of solving the problem, but a very entertaining one. 
  3. Blocking funds to provide liquidity. You can also contribute your tokens that you do not want to sell to various decentralized exchanges. For this, you will earn an additional percentage in tokens from the commission that will be paid to you by the users who make exchanges. This method is in high demand, but you need to be careful, otherwise impermanent loss will lower your profitability, and you may even lose a certain percentage of money in dollar equivalent. You can also put your tokens in a lending protocol, there is no impermanent loss there, however the yield is usually lower.

Write your opinion in the comments. Which method you like the most?



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