Maximum supply exists because some projects do not release their total token supply immediately when they launch, but still want to limit their possible future token amount. So, what happens when a coin reaches max supply?
Understanding what 'supply' means
The supply of a particular cryptocurrency refers to the total number of coins in circulation. Three essential terms relate to supply:
- Fixed supply
Fixed (or maximum) supply is the total number of coins that can ever be in circulation.
-Total Supply
Total supply is the number of coins currently mined (including the missing ones that are no longer in circulation or lost).
- Circulating supply
Circulation supply refers to the total number of coins in circulation.
What happens when a coin reaches max supply?
Since the maximum supply of a cryptocurrency refers to the maximum number of coins or tokens that will be ever created. This means that once the maximum supply is reached, there won't be any new coins mined, minted, or produced in any other way.
Normally, the maximum supply is capped by the limits defined by the underlying protocol of each digital asset. Therefore, the maximum supply and issuance of new coins are usually defined at the genesis block according to the project's source code (which also defines many other features and functionalities).
Setting a steady issuance rate together with a predefined maximum supply can be valuable for controlling a cryptocurrency's inflation rate, which may lead to long-term asset appreciation. Generally speaking, when the maximum supply is reached, there will be fewer coins available on the market. This is expected to create market scarcity, which may eventually lead to deflation conditions (or 0% inflation rates).
However, some cryptocurrencies do not have a predefined maximum supply, meaning they can be mined or minted continuously. Ethereum is a notable example of a cryptocurrency system that has no predetermined maximum supply. Ether's supply is constantly increasing as new blocks are generated.
Conclusion
It doesn't mean cryptocurrencies with unlimited supply hold no value. For example, Ethereum has no fixed supply and is still the second-largest cryptocurrency by market cap.
The main idea is to understand if hard-capped cryptocurrencies have a greater chance of preserving their value over cryptocurrencies with an unlimited supply. The final decision should be based on thorough due diligence that involves more factors besides supply structure.
Crypto Knowledge: What Happens When A Coin Reaches Max Supply? I hope you gain knowledge in crypto after reading this article.
