Deflation

Deflation can refer to a decrease in the supply of an asset or a rise in its purchasing power over time. In crypto, deflation often refers to a token supply shrinking. There are several ways of lowering a token count, including burning tokens, permanently removing tokens, or issuing new tokens at a lower rate than they are removed. A crypto asset can have deflationary supply mechanics if its protocol reduces circulating supply through burns or limited issuance. Deflation by default does not mean the asset’s price will rise. A token’s price still depends on demand, liquidity, market activity, and other external factors.

Hyperliquid’s HYPE uses token burns as part of its supply design, as up to 97% of protocol revenue from trading fees is used for automated, daily buybacks and burns. Those tokens are permanently removed from circulation and reduce the available supply.