Token Supply Models
DeFi Strategies • Yield Models • Token Income
programmable monetary policy framework
Token supply models define how a digital asset is created, distributed, and managed over time. These models influence scarcity, inflation, deflation, and user behavior in blockchain ecosystems. By controlling total supply, issuance schedules, and burn mechanics, protocols can shape demand, price dynamics, and long-term utility. Supply models range from fixed caps (like Bitcoin), elastic supply (like algorithmic stablecoins), to emissions-based systems used in DeFi and gaming.
Use Case: A DeFi protocol launches a governance token with a maximum supply of 100 million. Each month, a fixed percentage is emitted to liquidity providers. Over time, the supply rate slows, encouraging early adoption and limiting inflation.
Key Concepts:
- Asset-Backed Supply Model — Supply minted only when physical collateral is deposited
- Fixed Supply — Maximum token cap (e.g., 21M BTC)
- Inflationary — Continuous minting without a hard cap
- Deflationary — Tokens burned with each transaction or fee
- Emissions Schedule — Predictable token distribution timeline
- Token Velocity Control — Mechanisms that slow circulation to preserve value
- Vesting Curves — Time-structured release schedules for controlled distribution
- Token Sinks — Protocol features that permanently remove tokens from supply
- Minting — Creation of new tokens according to protocol rules
- Custom Minting — Programmable token creation logic defined by smart contracts
- Tokenomics — Economic design including supply schedules and caps
- Supply Structure — Architecture defining total, circulating, and locked supply
- Distribution Models — Allocation strategies across stakeholders and phases
- Tokenomics Design — Strategic planning of supply, demand, and incentive mechanics
- Emission Sustainability — Long-term viability of token release schedules
Summary: Token supply models are the programmable monetary policies of crypto ecosystems, determining how and when tokens enter circulation, how scarcity is engineered, and how economic incentives align over time.
Supply Model Mechanics
how different models shape long-term token behavior
Total supply locked forever
Scarcity increases over time
Ideal for store of value
Example: Bitcoin (21M)
Price driven by demand vs fixed supply
Halving events reduce new issuance
No maximum supply limit
New tokens created indefinitely
Rewards validators/stakers
Example: Dogecoin, Ethereum (pre-merge)
Constant sell pressure from emissions
Requires demand to outpace supply
Supply decreases over time
Transaction fees burned
Network usage reduces supply
Example: XRP, FLR burns
Scarcity increases with adoption
Price floor rises as supply shrinks
Supply auto-adjusts to target price
Wallet balances change daily
Algorithmic stability mechanism
Example: Ampleforth, OHM forks
Complex tokenomics, high risk
Requires deep understanding
Supply minted only when physical asset deposited
Tokens redeemable for underlying collateral
1:1 backing in allocated vaults
Example: $KAG (silver), $KAU (gold)
No speculative inflation or algorithmic risk
Supply tracks real-world demand, not emissions
Key Insight: Fixed caps create scarcity-driven value. Inflationary models require constant demand growth. Deflationary burns can accelerate value but depend on usage. Elastic models attempt algorithmic stability but often fail under pressure.
Supply Model Red Flags
warning signs of unsustainable tokenomics
Supply Model Green Flags
signs of sustainable tokenomics
Supply Model Investor Profiles
matching supply models to investment strategies