Total Supply

It is equal to the total amount of already-mined (or issued) coins minus the number of coins that were burned or otherwise disposed of.

Therefore, the total supply encompasses both the coins that are currently in circulation and those that have not yet been released into the open market. As an illustration, consider coins that are being held during a lockup or vesting period, which typically happens after a private sale or an initial coin offering (ICO) event.

Depending on the guidelines of the crypto protocol, it may be feasible to expand the total supply of tokens. For instance, the total supply of 21 million Bitcoin cannot ever be changed unless there is a maximum consensus to do so.

Types of Supply

Regarding the addition of new tokens to the supply, we can distinguish the following two types:

Inflationary supply: An inflationary supply model means that more tokens will be added to the supply over time, through mechanisms such as mining or staking.

The rate of token creation can be set to decrease over time, eventually reaching a maximum supply. Most projects start with initially fast distribution (mining, staking) which then gradually increases difficulty over time and thus slowing the distribution.

Deflationary supply: A deflationary supply model means that tokens will be removed from the supply, either through burns or other mechanisms. This model can increase the scarcity and value of a deflationary cryptocurrency.

Furthermore, the token's value will depend on whether the supply is fixed. Fixed tokenomics have a set amount of tokens with no additional minting (Hard cap) - this brings a certain stability and predictability into the ecosystem. Granted the demand increases over time with all tokens in circulation the price will increase. We can see this model of fixed supply for example in bitcoin, which relies heavily on steady or increasing demand.

To compare, many projects have decided not to limit the supply of their tokens at all. That means new tokens will be minted at a certain rate. New tokens enter circulation typically by staking. An example of this approach is Ethereum.

Price Determination

Since the price of cryptocurrencies mainly depends on supply and demand, it is simple to compare them to publicly traded shares on the stock market. The greater the supply of coins, the greater the demand that must exist for a price to rise.

If there is high demand for the token, which has a low supply, its price is likely to increase. On the other hand, a cryptocurrency's price may decrease if there is a high supply but little demand. Scarcity is one factor that can help boost the value of a coin over time. Burning is done with the intention of reducing supply and inducing scarcity.