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Is Uniswap Deflationary (Explained)

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Deflationary mechanisms work to keep the price of a crypto token stable. So, is the Uniswap token deflationary? Let’s find out below.

By reading this article, you’ll also learn about:

  • What deflation means in crypto
  • Other deflationary coins
  • Whether Uniswap is inflationary

Is Uniswap Deflationary?

Yes. Uniswap is a deflationary cryptocurrency.

As minting continues, Unsiwap tokens are near their supply limit. For that reason, UNI tokens in circulation are fewer, which drive up their value.

Since the launch of the UNI token, its supply limit was at set 1,000,000,000 UNI. Therefore, UNI has a reducing circulating supply

Once Uniswap reaches its supply limit, there will be no more minting of UNI coins. Upon reaching this limit, the only way UNI maintains or increases its market value depends is if the demand for this coin increases.

This deflationary feature helps safeguard the token’s future value. There are two ways Uniswap can put into place to reduce coins in circulation:

Burn-On Transactions

A burn-on transaction “burns” a portion of the tax made during transactions. The rate of burning depends on how many transactions occur in a day. Days with larger trading volumes promote faster burning of coins in supply. 

Buyback-and-Burn 

Uniswap can buy back its coins in droves and burn them. It does that by transferring them to unusable addresses. This activity wipes out these tokens from circulation, reducing the number of coins in supply. 

Learn more: Is Litecoin Deflationary Or Inflationary?

What Does Deflation Mean

To understand more about deflationary in cryptocurrency, let’s first see what deflation means

Deflation occurs when a currency increases its purchasing power for specific products or services. During deflation, you need less money to buy the same number of products.

In the crypto space, when a currency is deflationary, it has a limited coin supply. 

In standard economics, deflation helps stabilize and boost spending power. In the crypto world, deflation helps maintain the value of a token. 

Deflationary cryptocurrencies can use that feature to achieve different goals: 

Fixed Supply 

Flooding the crypto market with a token would hurt its value. Different cryptocurrencies apply deflationary mechanisms to curb this possibility.

During price drops, most crypto projects fix excessive supply issues by burning coins from the system.

Price Stability

Burning coins leads to an increase in demand for these digital assets, which helps improve the price or value of the coin. 

Learn more about Ethereum’s deflationary properties in our guide.

Is Uniswap Inflationary?

Uniswap has a curious design in that it’s both inflationary and deflationary.

It has a hard cap on the coin supply. As demand for the token continues to increase, supply will soon reach its limit. It’s only then that Uniswap will become inflationary. 

As of this writing, Uniswap has set its inflationary rate at a perpetual 2%. Here, the number of coins in circulation will increase by 2% annually. The consistent annual increase in coin supply is to help motivate participants to continue contributing to Uniswap network as UNI investors. 

Meaning of Inflationary

Inflation in the standard setup portrays a rise in the cost of living. Inflation forces people to spend more to buy the same product at a higher cost.

Inflationary Cryptocurrencies

Inflationary cryptocurrencies have an increasing or unlimited number of coins in circulation.

The most common way of adding new tokens to such a protocol is by staking or mining. Because adding tokens leads to a drop in the value of inflationary cryptos, participants must use more value to acquire a product or asset. 

An excellent example of an inflationary cryptocurrency is DOGE. After removing the supply limit on DOGE, the token is at risk of facing inflation. The lack of a limitation leads to an imbalance in supply and demand which can devalue the token. 

How To Invest In Uniswap?

Governance

One excellent way to invest in Uniswap is by participating in governance. The primary purpose of the UNI token is governance. By holding a UNI token, you participate in voting to decide its future. 

Holding a certain percentage of the UNI token allows you to suggest changes or authorize changes requested by other users in the Uniswap network. Such decisions include compliance with regulations. 

Providing Liquidity

When you stake your UNI on the platform, you allow other users to have the freedom of trading and swapping crypto. In return, all liquid providers receive rewards depending on the crypto you stake.

Uniswap ATMs

Investors who don’t want to invest in cryptocurrency can put their money in any crypto ATMs. Today there are over 20,000 cryptocurrency ATMs globally. Most of these ATMs are in Canada, Europe, and the U.S. 

Unlike before, you can buy most of the cryptocurrencies like Uniswap. 

Which Crypto Coins Are Deflationary?

Here is a list of deflationary cryptocurrencies: 

Polygon (MATIC)

The Polygon token burns part of the transaction fees to maintain the value of the MATIC coins. MATIC is valuable for two main reasons; it serves in the consensus mechanism and pays transaction fees on the network. 

SafeMoon (SAFEMOON)

SafeMoon is one of the cryptocurrencies which employ a burn-on transaction strategy to reduce coins in circulation. The burning of SAFEMOON costs 10% for every network transaction. 

Solana (SOL)

Unlike other cryptocurrencies, SOL holds both deflationary and inflationary elements. The transaction fees charged in SOL render the token deflationary, and the lack of limit in coin supply makes SOL inflationary. 

PancakeSwap (CAKE)

Despite having a capless coin supply, CAKE employs a method called Coin Burn. This method balances the network supply— PancakeSwap burns 0.0575% for transactions on the CAKE V2. 

CAKE also burns 100% of cake participation fees from IFOs.

Final Thoughts

From what we’ve seen above, Uniswap is deflationary. That’s because it has a coin supply limit whose goal is to help keep the price of the UNI token high. Uniswap also has inflationary mechanisms.