Token Supply

What is Token Supply?

Token supply refers to the total number of tokens that exist for a specific project. It is typically divided into three key metrics: circulating supply (available for trade), total supply (all tokens created including locked ones), and max supply (the absolute hard cap that will ever exist).

How does Token Supply work?

1. Supply is defined by a project's smart contract at creation and is managed through emission schedules, staking rewards, and burn mechanisms.
2. Fixed-supply tokens like Bitcoin have a hard-coded limit of 21 million .
3. Unlimited-supply tokens like Ethereum use mechanisms like EIP-1559 to burn tokens, offsetting new issuance and managing overall inflation.

Why does Token Supply matter?

Token supply is a primary driver of scarcity and value. A high "fully diluted" supply (where total supply is much higher than circulating) indicates potential future sell pressure as locked tokens vest and enter the market.

Understanding the supply dynamics is essential for evaluating the long-term sustainability and market cap of a token.

Key features of Token Supply

• Circulating, total, and max supply are separate metrics
• Fixed cap (scarcity) vs. unlimited issuance (utility/inflation)
• Burn mechanisms can make supply deflationary
• Emission schedules determine when new tokens enter the market
• Dilution occurs as more tokens are released from lockups

Examples of Token Supply

• Bitcoin has a 21 million max supply, making it a "hard money" asset.
• Ethereum has no max supply but burns a portion of every transaction fee to manage issuance.
• Uniswap (UNI) has a 1 billion total supply with roughly 75% circulating and the rest vesting over time.