When investing in cryptocurrency, one of the most important aspects that cannot be overlooked is the coin/token supply of the project. This metric is significant because it is closely correlated with price.
For instance, if a particular crypto has an extremely large supply of coins and its price is higher than another crypto of similar stature but with lower supply, then you can infer that the first crypto may be overvalued, or that the second one is undervalued.
Another important metric correlated to the token/coin supply is inflation. Most investors and crypto enthusiasts are probably aware of how much value the US Dollar has lost since 1933 when the Federal Reserve left the gold standard.
Cryptocurrencies fix this with deflationary properties which form a built-in guarantee of long-term value.
In Bitcoin’s case, its supply is algorithmically limited to 21 million, but it’s still inflationary as some coins have yet to be mined. Therefore, Bitcoin can be described as dis-inflationary because its total supply is capped and its rate of inflation is reduced every 4 years at the Bitcoin halvening.
Moreover, some cryptocurrencies combat inflation to an even greater degree by destroying, ‘burning’ tokens.
For instance, some ERC-20 tokens which are fully minted upfront, are designed to vanish from circulation over time by incorporating various burning mechanisms. By reducing supply through these burning mechanisms, it allows the remaining coins/tokens to gain in price.
A recent example of this is the Stellar (XLM) burn, where the Stellar Development Foundation decided to burn 55 billion of the existing 105 billion lumens (XLM). This Stellar burn effectively reduced the total supply by 50% and surged the price up by 25%.
There’s no question that coin/token supply coupled with burning mechanisms can influence a cryptocurrency’s price positively. Which is why I have identified three crypto projects with innovative burning mechanisms that are worth investing in today!
MakerDAO is probably the most important project made on Ethereum as it’s already laying the foundation for the new finance system.
As seen from the image above, Maker’s decentralized stablecoin DAI opens an enormous amount of possibilities for an infinite amount of businesses and projects to properly function in this decentralized space.
It’s possibly the only one project that has the full backing of its stablecoin, unlike ie. tether. And according to DeFi Pulse, the total ether deposited in MakerDAO is $335 million, representing 51.94 percent of the total value locked in decentralized finance protocols.
Why MakerDAO will shine in 2020 and beyond?
Not only is MakerDAO the leading DeFi protocol right now, but it’s poised to stay this way and even increase its dominance through 2020 and beyond.
The MakerDAO protocol launched with its DAI stable cryptocurrency being backed by ether instead of a 3rd party claiming to have the required collateral.
Now, as of November 18, MakerDAO officially began it's long-awaited transition to a Multi Collateral Dai (MCD) system where not only ETH can be used as collateral but also other ERC-20 tokens.
The first token people can utilize in MCD will be Basic Attention Token (BAT) along with ether (ETH).
Just think of how big it’ll be once all of the people who hold BAT and are genuinely interested in Brave+BAT (probably the most popular crypto duo) take a look into Maker’s possibilities? It should bring another wave of interest and increase Maker’s dominance even more.
To further emphasize why an increase in Maker’s usage and dominance is a really good thing, we must look at MakerDAO’s burning mechanism.
When people create a collateralized debt position CDP with Maker (or in other words put ETH or BAT as collateral to take DAI out of the system), they have to pay stability fees to the system. These fees are only payable in the MKR token and are burned from circulation forever.
Currently, over $5 million in stability fees are owed to the system:
As seen in the image above, we are looking at $5M+ that will soon be converted into MKR and taken out of circulation, making the outstanding MKR tokens appreciate in value.
This burning mechanism has a significant impact on the MKR token price as there were only 1 million MKR tokens minted and its amount is shrinking at a current rate of 8641.39 per annum.
Lastly, along with the launch of Multi Collateral Dai is the introduction of the Dai Savings Rate, which allows users to earn DAI simply by holding it. Users simply hold their Dai in the Savings Rate contract and are rewarded with a variable interest rate paid out in Dai.
Moreover, you should keep in mind that this entire system is all decentralized compared to other compound/lending ‘crypto’ services out there. MakerDAO’s system can’t be stopped by any government and is open to all, unlike centralized services.
As for example is Coinbase staking services, where they recently started offering staking rewards for Tezos (XTZ), but only for eligible US customers.
For the OGs, you may remember Factom (FCT) as the revolutionary data integrity protocol built on top of Bitcoin.
This narrative stands true today and its roots go as far back as 2014. In its beginning, Factom’s creators recognized that Bitcoin’s limitations prevented it from being a practical blockchain for Enterprise data solutions.
This realization led them to create Factom as an open-source data layer built on top of Bitcoin. The project grew to become a powerful blockchain protocol that ensures the integrity preservation of data and digital assets at an enterprise and government level.
Factom saw great success with their involvement with the U.S Department of Homeland Security, the Bill and Melinda Gates Foundation, it’s blockchain data being used as legal evidence by TikTok, and many more.
Not only has Factom’s blockchain protocol proven itself with an array of real-world use cases, but the project has also weathered multiple crypto winters and stood the test of time.
However, by looking at Factom’s price chart it might seem that the project has slowed down a lot, but let’s not get mistaken. The team has been working behind the curtains on its new child project for a long time, and it’s called PegNet.
Before you go and think Factom’s team abandoned their project for a new one, just hear me out, because PegNet is extremely bullish for Factom and its FCT cryptocurrency.
PegNet is a promising new stablecoin 4.0 network built on top of the Factom protocol. What PegNet offers is a decentralized, non-custodial network of tokens pegged (stabilized) to different fiat currencies, cryptocurrencies, commodities, and more.
PegNet’s digital assets are interoperable and enable the seamless trading and conversion of value without the need for counterparties. Any pegged asset can be traded peer-to-peer for just 1/10th of a cent in a secure and decentralized manner – enabling novel use cases for payments, conversions, and store of value for digitized assets.
Factom can potentially benefit immensely from the success of PegNet for two reasons:
1) Because it’s built on top of the Factom protocol, thus further legitimizing the project.
2) Because Factoids (FCT) can be converted ‘burned’ into PEG – PegNet’s native cryptocurrency.
Regarding the burning of FCT for PEG, the moment PegNet launched, heavy amounts of FCT burning occurred in comparison to the entire history of FCT burning:
Also, since PegNet’s mainnet went live in October 2019, more than 340,000 FCT have been converted into PEG tokens and burned from circulation forever.
PegNet is growing at an unprecedented rate. It already reached a $1M market capitalization in just 34 days and has a hash rate growing 100x since launch, reaching over 680 million Mh/s on November 7.
This growth is extremely bullish for not only PegNet but for Factom too because FCT burning is one of the main gateways to get PEG tokens for the time coming.
Therefore, if PegNet continues to grow at its current rates, we can anticipate a decent amount of FCT tokens to shrink out of circulation by those who want to put their hands on PEG – leaving the remaining FCT holders with a much higher value on their tokens.
So whether you want to invest in FCT or PegNet, now is the best time to do so.
Kyber Network (KNC)
Kyber Network (KNC) is an on-chain liquidity protocol that aggregates liquidity from a wide range of reserves, powering instant and secure token exchange in any decentralized application.
With Kyber, any ERC-20 token or Ethereum (ETH) itself can be instantly swapped on the Ethereum blockchain. It connects the fragmented tokenized world and enables instant and seamless transactions between platforms, ecosystems and other use cases.
Kyber Network launched in 2017 and was backed by many noteworthy individuals including Vitalik Buterin the founder of Ethereum as an advisor. The project has since experienced a lot of growth and success with notable partnerships and ecosystem implementations.
Most notably is with Electronics firm HTC, which is using Kyber Network to allow its users to exchange ERC-20 tokens within its blockchain smartphone EXODUS 1.
Another big partnership is with MyEtherWallet (MEW), which enables users to convert tokens instantly and with ease from within the MEW wallet.
Apart from these big partnerships, Kyber has been integrated into a wide range of other wallets, websites, and applications because it’s platform agnostic, developer-friendly, and easy to integrate.
However, despite Kyber’s successful partnerships and integration, its price is eating dirt.
This negative price action is also despite its services being used daily and with the network nearing 500k trades.
Now here is the Kyber Network burn chart, where a total of 4,090,541.05 KNC in fees has been collected and 2,912,985.19 KNC has been burned from Kyber’s circulation forever:
To explain Kyber’s burn mechanism and the above charts, Kyber utilizes a burning mechanism to take a portion of its KNC token supply out of circulation with every swap. Whenever you swap tokens on Kyber, you pay a small transaction fee in KNC, some of which is burned (hence the two different charts).
Now, as Kyber Network’s usage continues to grow, so will the number of burned KNC tokens, thus reducing the supply which should eventually result in an increasing KNC price. Therefore, with KNC currently priced so low, it now appears to be the best time to invest.
All of the projects discussed above are pretty solid and making waves in the decentralized finance (DeFi) space. They have solid teams, experience continued growth, and have novel burning mechanisms that are designed to reduce supply and increase their underlying token’s price.
If these projects continue to progress at their current rates of growth, there’s no denying that they’ll be very promising for years to come.
What do you think about these 3 crypto projects and their burning mechanisms? Which one do you think is the most undervalued and will experience the greatest amount of growth?
Let me know what you think in the comment section below.