In the crypto world, inflation – or deflation – is something common to many tokens. Inflation means that the supply of a cryptocurrency is increasing.
It is particularly important to bear in mind the inflation rate of projects.
Some projects can flip from being inflationary to being deflationary due to protocol amendments. This is the case in Ethereum for example which became deflationary in 2022, for a period of time.
As in the traditional markets, inflation can play a part. What is the point of generating yield of 8% in U.S. REITs for instance, if inflation is at 3%, and the Dollar has fallen by ~10% against some of its peers in the past 6 months.
This inflation rate and value of the Dollar against a basket of others – or by judging the DXY – should also be weighed of course, if seeking stablecoin yields.
In fact, one of the central tenets of Satoshi’s creation of Bitcoin was to mitigate the fact that inflation is eating away at fiat savings.
Inflation in Crypto vs Traditional Finance
In traditional markets, inflation is often driven by central bank policies, government spending, and consumer demand. In crypto, however, inflation is typically baked into the code. Protocols determine how much new supply is released and at what intervals.
For example, Bitcoin is known for its fixed supply cap of 21 million coins, with issuance halving every four years. Editor-in-chief of Cryptoslate, Liam Wright, states the current inflation rate of BTC is 0.84%. Ethereum, by contrast, historically had no cap, although the introduction of EIP-1559 and “the Merge” significantly changed its inflationary profile, even tipping it into deflationary territory at times.
These different approaches mean crypto investors must pay close attention not just to the price action of tokens, but to the underlying supply mechanisms.
Where to Find Out Inflation Metrics
One of the best places to see whether a coin or token is inflationary or deflationary is CoinCodex. However, always double check stats before making an investment decision. For instance, CoinCodex has Polkadot’s inflation at 62.2%, whilst it was widely reported that the protocol’s new rate in the beginning of this year is 7.78%, after having been continuously maintained at 10%.
Other helpful tools include Messari, Token Terminal, and CoinGecko’s tokenomics tabs. These platforms often display supply trends, emissions schedules, and any upcoming changes that could affect supply and inflation.
Assessing a Protocol’s Tokenomics
Another tool for evaluating inflation exposure is to look at the tokenomics. Are new tokens being minted as part of validator rewards? Is there a burn mechanism in place to counteract this? Are there hard caps?
Understanding these parameters can help you choose between protocols that prioritise long-term value preservation versus those that favour rapid growth through aggressive supply expansion.
Also consider token unlock schedules—large, time-based releases of previously locked supply can trigger sharp increases in circulating tokens, even without formal inflation.
Stablecoin Inflation Risk
Even when investing in ‘stable’ assets with yield, inflation risk does not disappear. If your stablecoin is pegged to a fiat currency experiencing inflation – as they almost all are, almost all the time – your wealth is still affected.
Deflationary Models and Store of Value Appeal
For long-term holders, deflationary models — where the supply is gradually reduced—can be especially appealing. Bitcoin is the poster child for this idea, but other protocols such as BNB, which regularly burns tokens, have adopted deflationary mechanisms to attract investors seeking value preservation.
A protocol that consistently reduces supply can create upward pressure on price if demand remains steady. This can offer a form of ‘digital scarcity’ similar to precious metals, which is a central concept behind crypto’s value proposition.
Final Thoughts: Always Factor in Inflation
Inflation is not just a macroeconomic concept confined to fiat currencies – it’s woven into the fabric of crypto protocols themselves.
Before committing capital, understanding how a token’s supply changes over time could make all the difference between an appreciating investment or one quietly eaten by inflation.
Take time to investigate whether a project is inflationary or deflationary, where your returns are coming from, and how supply-side economics are likely to affect your investment strategy. Doing so helps avoid the common pitfall of chasing attractive yields that don’t actually beat inflation.
Crypto may be a frontier market, but inflation is an old enemy — and one worth understanding in detail.
Speculatour 