Inflationary Model
An inflationary token model is one where new tokens are added to the market over time. This is best demonstrated from a cryptocurrency like Bitcoin and ADA. Bitcoin issues 12.5 new Bitcoin every 10 minutes as a reward for mining the next block. Instead of going through a central bank, Bitcoin is run by many nodes that link to a blockchain network. The nodes will confirm transactions worldwide. The network is always open, and it can handle transfers of all sizes. ADA is the in-house token of the Cardano blockchain. Cardano uses a different approach for token production, as Cardano is a proof-of-stake cryptocurrency. This token model will continuously be printed over time, with no limit of tokens that can ever be created. There are variations on the inflationary token model, with some tokens limiting token creation yearly, and others going based on a set schedule in perpetuity. Outside of cryptocurrencies, almost all traditional fiat currencies operate on inflationary models. In the worst cases, this inflation can increase uncontrollably as the governing bodies of the currencies run themselves into massive debt and print more money to pay off their debts. Despite these dangers and cons, the gradual inflation of currencies can have some benefits. For example, many economists believe that the 2% inflation of the U.S. Dollar allows the reduction of people’s debt, the increase of wages, and an increase in general spending.
Deflationary model
In this model, there is a set number of tokens to be created, with that limit never being adjusted upward. This creates a deflationary currency where even as demand increases, supply does not. A limited supply of tokens generates natural demand as the supply declines. It also completely eliminates the worry of inflation which plague fiat currencies. There are several advantages both investors and projects can derive from deflationary tokens. Deflationary model wishes to solve the issues with traditional finance like inflation. Here are some advantages of deflationary tokens : Increase A Coin’s Value In the fundamental law of supply and demand, an increase in supply leads to a decrease in demand. Deflationary cryptocurrencies focus on reducing their supply in the market, increasing their scarcity, and heightening their demand. It is common knowledge that rarer things to get are more enticing than those which are readily available. In the long run, this will lead to an increment in the coin’s value. Generating Profits When a platform decides to buy back coins from holders. The whole process leading to the coin burning will profit those who choose to short their coins. At the end of the day, the expected results will be a boost in value after burning. Removing Extras from the Market Unsold tokens are harmful to the progress of a cryptocurrency. Deflationary mechanisms help a project to remove them from circulation instead of flooding the market. Furthermore, if there were coins distributed incorrectly, burning would be beneficial to reduce the mistake.
Duel-token model
In the duel-token model, two distinct tokens are used on a single blockchain to create a better economic structure. Many tokens in this model opt to have one token function as a store-of-value which generates a secondary, utility token to fire actions on the blockchain network. This gives investors incentive to hold the store-of-value token as it generates returns in the form of the utility token. It separates financial incentive from utility. The example of this model is VeChain(VET/VTHO). VeChain is a distributed business ecosystem leveraging blockchain technology. It’s specifically designed to be used by both small and big businesses. VeChain’s public blockchain is called VeChainThor. The VeChainThor blockchain works similarly to other business-use blockchain platforms. VET (VeChain Token) is used for financial transactions on the VeChainThor blockchain and market speculation. VTHO (VeThor Token) is the “energy token” that’s used to conduct transactions on VeChainThor. VET owners can generate VTHO for use on the VeChainThor blockchain. The other example is Ontology. Ontology is a next-gen network of public blockchains, and a distributed, trust-based collaboration platform. It supports the public chains of the applications that have been developed on it’s framework, and collaboration with various protocol groups.
Deflationary model
Some cryptocurrencies back their tokens to another asset. In this asset-backed model, users can derive the value from the token based on the value of the token’s underlying assets. The most well-known (and highly controversial) asset-backed token is Tether, which purports to be backed by the US Dollar. With the transparency, asset-backed tokens are able to create stable digital assets which remove volatility in cryptocurrencies. The example of this model is Tether (USDT). Tether is the first and most popular cryptocurrency stable-coin. Stablecoins mirror the value of a fiat currency by holding enough reserves to back the supply. USDT is tethered to the US dollar, with plans to anchor to other fiat currencies too. USDT is traded on a variety of cryptocurrency exchanges, including BitForex, OKEx, FCoin, Binance, Huobi, and OOOBTC. Trading pairs include BTC, BCH, ETH, LTC, and more cryptocurrencies. It’s also regularly traded for fiat currencies. Another example of this model is Dai, which is an asset-backed, hard currency for the 21st century — the fully-decentralized stablecoin on Ethereum. Dai is an autonomous system of smart contracts specifically designed to respond to market dynamics ensures that this essential stability property is continuously maintained. No one can alter the core mechanics of Dai, making it a safe and predictable form of money. Each Dai is backed by some valuable asset held in the secure Maker smart contract platform.