The total and circulating supply of a token fundamentally shapes its economic properties and long-term value trajectory. Projects choose between fixed supply models, inflationary models, and deflationary mechanisms.
Fixed supply tokens like Bitcoin (21 million cap) create scarcity. As demand grows without new supply, price appreciation is structurally supported. However, fixed supply requires alternative funding mechanisms for network security once block rewards diminish.
Inflationary tokens continuously emit new supply to fund staking rewards, liquidity incentives, or developer grants. High inflation can dilute existing holders if demand growth does not keep pace. Deflationary mechanisms — such as token burns — permanently reduce supply, potentially increasing scarcity over time. EIP-1559 introduced burning of a portion of Ethereum transaction fees, making ETH net deflationary during high-usage periods.