Crypto Dictionary

Total Supply

Total supply describes all tokens of a particular cryptocurrency that have been produced or mined, and are currently in use, including any that are locked or reserved.

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.

Key Takeaways

  • The total supply of a cryptocurrency includes the coins that are currently in circulation and those that have not yet been released into the open market.
  • A larger supply translates to a lower price per token
  • Scarcity is one factor that can help boost the value of a coin over time.
  • Burning tokens can be done with the intention of reducing supply and raising scarcity.

FAQs

How is a token's total supply calculated?

The total supply of a token is calculated by adding the circulating supply to the number of coins that have been mined but not yet distributed in the market. E.g. token lockups, vested tokens, etc.

What is premining?

Premining is when a new cryptocurrency project is launched, and the number of tokens issued is not equal to the one being distributed. These types of measures are usually taken to follow demand and not oversupply a cryptocurrency that could, as a result, affect the price negatively.

What is the difference between total, maximum and circulating supply?

Total supply is the total amount of cryptocurrency coins or tokens that have been created. Maximum supply is the maximum amount of coins or tokens that can be created. Circulating supply is the amount of coins or tokens that are actively being traded. 

What is a vesting period?

A vesting period refers to a period of time when coins are minted (already calculated in Total Supply), but not yet available for public distribution or circulation.

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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