Since BAT has a fixed limit and can't be mined, I was initially confused on where it came from and how it is distributed regularly. In this article, I've tried to lay out the circle of life in terms of how BAT is distributed and works practically:
BAT is an ERC-20 Token on the Ethereum blockchain, which means that it cannot be mined. There is a max supply of 1,500,000,000 BAT, and there will never be more made. So how does this system keep working since users are getting paid in BAT every month? Glad you asked, I'll outline the process below.
Step 1: Brave buys BAT from an Exchange
Brave consistently buys BAT in bulk from exchanges, mostly from Uphold and Coinbase. They regularly release this purchase info on their transparency page. This regular purchasing gives them the amount needed for businesses to buy BAT from them for advertising.
Step 2: Advertisers buy BAT from Brave for ads
Each month, advertisers wanting to show their ads in the Brave browser, will purchase ad space from Brave. While the advertisers pay Brave in fiat currency, they are in essence buying the BAT from Brave, since Brave takes those equivalent funds and distributes them to the users in the form of BAT.
Step 3: Brave Users Earn BAT from Viewing Ads
As you likely are aware, users of the Brave browser are paid for viewing ads in BAT tokens, which is 70% of the amount the advertisers spent on the ad buys themselves. Users can then tip content creators with this BAT, or send it to their personal Uphold (or soon Gemini) wallets.
Step 4: Users Sell their BAT on Exchanges
Once a user has transferred their BAT to their exchange of choice, a large number sell for fiat or convert to other cryptos, leaving the exchanges with loads of BAT to sell back to Brave, so that the whole process starts over again.
Would the system fall apart if everyone HODL'ed their BAT?
At the current rate, plenty of people are selling of their BAT for it to flow back to the exchanges and to Brave to restart the cycle. BAT is still fairly new, so many crypto holders prefer to swap for a crypto that's had a longer track record like BTC or ETH, however as Brave and BAT are growing in popularity, more and more users are HODLing their BAT. This is actually a very good thing, because the more reluctant people are to sell their BAT, the higher the demand will be which will drive the price of BAT upwards, causing more people to sell for a better profit and the ecosystem as whole to grow and improve.