Deflationary Mechanisms: Generating Value Behind the Coin

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The world of blockchain technology has pushed financial systems into an era where people are becoming more interested in the investment opportunities and utilities of digital currencies. To further boost the adoption, new projects launch their native tokens with interesting mechanisms to benefit the investors. 

Currently, there are almost 12,000 tokens in the market, and most of these tokens follow unique protocols and mechanisms to add value to the project and its users. One of the concepts that have amassed popularity is a deflationary mechanism for tokens. While it is easy to confuse deflation in traditional finance with deflation in crypto, in theory, they are entirely different. 

While in centralized finance, deflation reflects a negative growth, in the crypto space, it suggests a positive approach where the investors are rewarded the most. Several tokens and projects have incorporated deflationary mechanisms in their operations. Let's understand how a deflationary token operates. 

A deflationary asset in the crypto space is an asset that will have its market supply of tokens decrease gradually with time. The project can perform several activities such as burning, buy-back, etc., to reduce the circulating supply. By reducing the circulating supply, the project is intentionally increasing the token's value following the supply-demand rule. 

Moreover, any token with a fixed supply in the crypto space is inherently deflationary. As investors purchase and hold the tokens, the circulating supply will automatically decrease. Burning is a popular strategy used by projects to reduce the token supply. An interesting thing to