What Is Max Supply?
Max supply refers to the estimated or predetermined maximum number of coins or tokens that will ever be available in the lifetime of a cryptocurrency.
Once the maximum supply is reached, there will be no further production or mining of new coins or tokens.
The underlying protocol of that digital asset typically defines the specific maximum supply for a cryptocurrency.
Supply Metrics in Cryptocurrency
It’s worth distinguishing between maximum supply and total supply.
Maximum supply is calculated by summing up the coins that have already been mined or issued with those that are yet to be mined or issued.
On the other hand, total supply takes into account the coins that have been lost and subtracts them from the mined or issued amount.
Types of Maximum Supply in Crypto
There are several types of maximum supply in the cryptocurrency space:
- Fixed max supply: This is the most common type, where the maximum supply is a predetermined number of coins or tokens that cannot be changed regardless of demand. Bitcoin is a notable example of a cryptocurrency with a fixed maximum supply.
- Deflationary max supply: In a deflationary maximum supply, the total supply of coins is designed to decrease over time. This approach is often implemented to reduce the inflation rate and increase scarcity. Ethereum has plans to transition to a deflationary maximum supply model.
- Dynamic max supply: A dynamic maximum supply adjusts based on predetermined parameters, such as market demand, supply, and inflation. This type of supply offers flexibility and adaptability to changing market conditions.
- No max supply: Some cryptocurrencies have no maximum supply limit, allowing the number of coins or tokens to increase indefinitely. This is commonly seen in utility tokens where the supply is not constrained by a fixed number of coins but rather by the number of users or utility provided.
Understanding the type of maximum supply of a cryptocurrency is important as it can influence factors such as scarcity, inflation rate, and long-term value potential.