Inflation/Deflation In Tokens

I remember back in 2011 when I first learned about Bitcoin, we started talking about the technology and the model internally at USV. My partner Albert had done a lot of reading about it and he raised the 21mm hard cap as something that had both pros and cons associated with it.

Ever since then I’ve been mindful of that when looking at the design of various crytpo currencies. Most have a hard cap or some small inflationary model (like ETH).

Yesterday Albert wrote a blog post explaining some of the issues that hard caps create for crytpocurrencies.

In his post, Albert explains that the hard cap approach:

 

results in extremely rapid appreciation of tokens well ahead of their use value.

We are certainly seeing that at play right now with the rapid price escalation across the crypto landscape. Of course, some of that is the speculative fever that has invaded the sector.

But it may also be related to the inherent monetary policy that most teams are choosing for their tokens. And so I think it’s a good thing to have this discussion and think about whether a hard cap is a feature or a bug.