Taxes
TAXES AND THE POWER OF REFLECTIONS
Asset staking can be relatively low risk - at least from a Tokenomic perspective. The fiat-value of a cryptocurrency is most certainly in a constant state of flux – but on the crypto valuation side of the conversation, it is only possible to accrue value through traditional staking since the interest being paid is in token – not fiat – form.
Of course, Decentralized Finance has introduced even more creative ways to reward Holders. The two that are most intriguing are Reflections + Taxes.
Taxes are exactly what they sound like – an imposed charge on the overall value of a transaction, built right into the smart contract. Crypto projects can have all sorts of reasons for imposing them. One of those reasons - can be to fuel Reflections, a Tokenomic mechanism wherein a percentage of the collected taxes are ultimately re-distributed to all holders of the native token. A Holder’s total payment is typically based on what percentage of the total circulating supply they own. Reflection payments may be paid in the form of the native token, a secondary token, or even a stable coin.
Reflections are an outstanding way to:
1) Attract New Investors
2) Retain Existing Investors
Taxes can have a plethora of purposes, independent of simply lining the developer team’s pockets with digital gold. Allocating portions of tax revenue to pre-determined functions serves as an on-ramp to token utility and a more robust use case.
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