Common mechanisms include staking, locking, liquidity provision, bonding, and transaction taxes. Each reduces effective circulating supply in exchange for yield or incentives.
The table below details various aspects of demand mechanisms:
| Mechanism | How it works | Key considerations |
|---|---|---|
| Locking | Users lock tokens to earn a yield. | This will result in a certain percentage of the circulating supply being locked. Therefore, based on the monthly yield you wish to target, we can look at similar projects to analyze the percentage locked of circulating supply at that moment. This is what we will take to be token demand due to locking. |
| Staking | Users stake tokens to earn yield. | This will result in a certain percentage of the circulating supply being staked. Therefore, based on the monthly yield you wish to target, we can look at similar projects to analyze the percentage staked on circulating supply. This is what we will take to be token demand due to staking. |
| Liquidity Provisioning | Users provide liquidity to earn yield. | This will result in a certain percentage of the circulating supply being put into a liquidity provider position. Therefore, based on the yield you wish to target per month, we can look to similar projects to analyze the percentage of circulating supply provided to a liquidity position. This is what we will take to be token demand due to liquidity provision. |
| Bond | Users are attracted to bond assets due to the discount on XYZ token over the market price. | This will result in a certain percentage of the circulating supply being bonded. Therefore, based on the discount and vest period we can look to similar projects to analyze the percentage bonded of circulating supply at that moment. This is what we will take to be token demand due to bonding. |
| Taxing | Users have to pay tax on transactions denominated in the project token. | This will result in a certain percentage of the circulating supply being taken out of circulation. Therefore, based on volume and tax rate (tax fee) we can look to similar projects to analyze what that percentage of circulating supply is. This is what we will take to be token demand due to taxation. |