A deflationary token is a type of cryptocurrency designed to decrease its supply over time. This is often achieved through mechanisms such as token burns, where a portion of the token supply is permanently removed from circulation. The intent is to create scarcity, which can potentially increase the token’s value as demand remains steady or grows.Deflationary models encourage holding rather than spending, as users may expect the token’s value to rise with reduced supply. This contrasts with inflationary tokens, which can lose value over time due to increasing supply.Many projects utilize deflationary mechanisms as incentive structures for investors. For example, transaction fees might be partially burned, or certain activities within the ecosystem could trigger token buybacks and burns. While the deflationary approach can enhance value perception, it also carries risks. If the demand does not meet expectations, the token’s value may not rise as intended. Overall, deflationary tokens aim to create a self-sustaining ecosystem with higher long-term value for holders.