Centralized regulatory organizations typically govern asset price inflation in traditional capital markets. Is it the same in Web3? Who guarantees fair play?
In the United States, the Federal Reserve (Fed) takes responsibility for keeping inflation at reasonable levels by implementing tools such as interest rate changes, bond purchase programs, and money printing. This obligation is usually similar in most other nations. In Web3, inflation is controlled by the protocol’s monetary policy, which is determined by the community through a decentralized government.
Deflationary mechanisms are woven into tokenomics as the ecosystem is created. Where tokens are in unlimited supply, as the token ecosystem matures there will be more opportunities to spend. Therefore, the organization managing the token must proactively identify these opportunities and integrate them into tokenomics to reduce supply.
The Ethereum merger is a good example of how supply and demand for Ethereum were changed to make it deflationary. Such significant changes to tokenomics are usually proposed, approved, and executed by a decentralized autonomous organization (DAO) that governs the token and the platform behind it.
These tokenomic changes are then integrated into smart contracts as the ecosystem rules. Smart contracts drive the new business rules and economic model of the ecosystem. As a result, DAOs could play an important role in ensuring efficient and effective governance of tokens.
Since decentralization is one of the tenets of the blockchain world, an economic system that is not controlled by the founding teams, investors, venture capitalists, and whales is critical to delivering sustainable tokenomics based on strong business models. .
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