Hey friend, inflation is running extremely hot right now. Consumer prices in 2022 rose at the fastest rate in over 40 years. This has led many of us to start thinking about how to protect our money from losing purchasing power over time. One area I‘ve been researching is cryptocurrencies with deflationary properties. These cryptos are designed to increase in scarcity and value over time by reducing the total coin supply. In this article, I‘ll explore my top 10 picks for deflationary cryptocurrencies worth considering in 2023.
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A Quick Primer: What is a Deflationary Cryptocurrency?
First, let‘s quickly talk about what makes a cryptocurrency "deflationary." Unlike inflationary cryptos that have an ever-expanding supply, deflationary coins are programmed to reduce the total supply over time. There are two main mechanisms used:
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Coin Burning – The developers permanently destroy or "burn" a percentage of the tokens in circulation. Less supply = higher value per token.
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Transaction Fees – A small portion of tokens are destroyed with each transaction on the network. The billions of transactions over time lead to meaningful supply reductions.
By reducing supply while demand increases or stays constant, deflationary cryptos are designed to see their value appreciate over the long run. Now let‘s look at the top options out there:
1. Bitcoin (BTC)
As the first and largest cryptocurrency, Bitcoin is the most proven deflationary asset. The total supply of BTC is limited to 21 million coins. Roughly 19 million have been mined already since Bitcoin launched in 2009.
Bitcoin‘s code reduces the block reward by 50% about every 4 years. In May 2020, it dropped from 12.5 BTC per block to just 6.25. This slowing supply growth leads to deflationary pressure – there will never be more than 21 million BTC.
In addition, an estimated 20% of mined Bitcoin has been lost forever due to people losing private keys or dying without passing them on. This severely restricts the circulating supply over time.
Key Stat: Only 900 new BTC enter circulation each day, while supply decreases by ~1,800 BTC daily.
2. Ethereum (ETH)
Ethereum completed a major upgrade in September 2022 that transitioned it to a deflationary model for the first time. Previously, Ethereum‘s supply was inflationary like many other coins.
But now, a small amount of ETH is permanently destroyed with each new transaction block. While new ETH is still being issued, the "burn rate" currently destroys more ETH than is created.
If network usage and burn rates stay high, Ethereum‘s total supply could gradually deflate over many years. However, some critics argue burn rates may fall substantially once the initial excitement wears off.
Key Stat: Over 1.2 million ETH (~$1.75 billion) has been burned since September 2022.
3. Binance Coin (BNB)
Binance Coin employs a simple yet effective coin burning mechanism. The Binance crypto exchange buys back and burns a portion of BNB coins every quarter using 20% of their profits. This puts consistent downwards pressure on total supply.
Since launching in 2017, over a quarter of the initial supply has already been burned so far through quarterly burns. The eventual goal is to cut the supply in half from 200 million down to 100 million BNB.
Key Stat: 16.8 million BNB were burned in the most recent quarterly burn, worth $640 million.
4. PancakeSwap (CAKE)
PancakeSwap is a leading DEX on Binance Smart Chain. It uses an innovative transaction-based burn model to make CAKE deflationary.
A portion of every CAKE trade on PancakeSwap (currently around 18 CAKE per block) is burned automatically. At current volumes, over half a million CAKE are burned daily through this mechanism. More usage = more burning.
Key Stat: 473,000 CAKE were burned yesterday alone, worth approximately $2.4 million.
5. SafeMoon (SFM)
SafeMoon takes a unique approach with its "reflect" tokenomics. Each SFM transaction incurs a 10% fee – 5% of which is permanently burned from the total supply.
This simultaneous burn and redistribution model attempts to create consistent deflationary pressure while rewarding long-term holders with greater percentage ownership.
Since launching in 2021, over 40% of the quadrillion initial supply has already been burned. However, critics argue SafeMoon‘s tokenomics rely on maintaining extremely high trading volumes that may not be sustainable long-term.
6. Polygon (MATIC)
As a layer-2 scaling solution for Ethereum, Polygon processes billions of transactions on its network. A tiny portion of each MATIC gas fee, around 0.27%, is permanently burned by the network.
While the percentage is small, the volume of transactions makes MATIC deflationary in aggregate. Millions of MATIC are burned each day, and about 17% of the initial supply has been burned since 2019.
Key Stat: 148 million MATIC have been burned to date, and the total fixed supply is capped at 10 billion.
7. Cardano (ADA)
Cardano uses an Ouroboros proof-of-stake algorithm to validate transactions. This algorithm was designed to slowly decrease the inflation rate over time.
ADA‘s current inflation rate is around 5-6% annually. But the rate declines by 0.27% each year, gradually transitioning to an entirely fixed supply by 2045.
So while Cardano is still inflationary today, its predictable monetary policy will eventually become deflationary in the coming decades. This gives investors clarity into long term supply dynamics.
8. Crypto.com Coin (CRO)
Crypto.com aggressively burned 70% of the total CRO supply in 2021, taking the circulating supply down to just 30 billion tokens. They have committed to burning an additional 10% each year until only 5 billion CRO remains.
While most of the burn has already occurred, this strategy helped drive the meteoric price rise of CRO in 2021. Critics argue future deflationary pressure is limited given the bulk of the supply reduction is already complete.
9. Quant (QNT)
Quant is an Ethereum-based utility token for powering the Quant Network overlay protocol. The fixed supply is capped at just 14.6 million QNT.
At the end of each quarter, surplus QNT is sent to an unspendable address and burned based on licensing revenues earned by Quant Network. This links coin burning to real network usage.
However, the future burn rate remains uncertain and depends largely on Quant‘s adoption and success. This makes QNT a higher risk/higher reward deflationary asset.
10. IOTA (MIOTA)
IOTA is a distributed ledger optimized for the Internet of Things economy. The supply is fixed at 2.78 billion MIOTA.
To promote deflation, IOTA burns all network transaction fees. Recently, they announced plans to launch smart contracts that can burn MIOTA under certain conditions, allowing community-driven coin burning initiatives.
Key Stat: There is no mining on IOTA. All MIOTA were issued via an initial crowdsale in 2015.
Concluding Thoughts
No investment is without risk, and cryptocurrency is no exception. But deflationary coins like the options discussed here present an intriguing opportunity for investors looking to counteract inflation.
As with any portfolio decision, moderation and smart risk-management are key principles to keep in mind. However, I believe a small allocation to top deflationary cryptocurrencies could prove rewarding over the long-term as supply constrictions lead to appreciation.
I hope mapping out this landscape of leading deflationary cryptos was helpful. Let me know if you have any other questions – I‘m always happy to chat more!
