BeinCrypto spoke to Nick Agar, Founder of AXIA, about hyper-deflationary assets and their value to projects and the cryptocurrency space.
AXIA Coin is a hyper-deflationary asset-supported currency. It aims to provide easier access to financial assets for people across socioeconomic and global divides.
Unlike some other cryptocurrencies, Agar set out to create a coin that decreases in market supply over time, on purpose. This is in complete opposition to inflation, where supply increases. Both affect the value of the asset in different ways.
“With a background that is a mix of finance and technology, I spent a significant amount of time researching different monetary systems and philosophies and the impact that each system could have on the value of a currency,” explains Agar.
“The U.S. dollar is the current reserve currency, therefore that monetary system has a dramatic impact on the global economy. It is very clear that the dollar has continuously lost purchasing power due to inflation since the move off the gold standard.”
When considering cryptocurrencies, Agar and his team turned to deflationary economics models for the solution.
“The desire for inflation makes no sense. Especially if wages are not increasing at an equal or greater rate than the loss of purchasing power. Rising prices only work to lower the standard of living for most, increasing the barrier to entry to better our lives,” he says.
A quick deflationary asset explainer
As already mentioned, deflationary assets work on a decreasing supply. This instills value, as scarcity means the asset becomes rare as time goes by.
“As currencies are not priced in a vacuum and are measured based on relative value, a deflationary instrument can protect against loss of purchasing power and can also be considered a store of value,” says Agar.
Deflationary assets diminish at a planned amount. This is often through buybacks by the project or token burns.
The double-edged sword of scarcity
While scarcity is key, this doesn’t inherently make the value stick to a cryptocurrency or asset. In Agar’s view, bitcoin is an example of an asset considered delfationary. However, it has its pitfalls.
“Many consider bitcoin to be deflationary and therefore store of value. This is primarily due to the fact that bitcoin has a finite supply that will never increase. So people can hold it with the thought that it could stave off the debasement of value,” he says.
“However, bitcoin is only valuable to the degree that people believe it has value. People buy it with the hope that someone else will pay more for it in the future. Simple supply and demand economics. Hence why it is viewed as a speculative asset.”
However, Agar explains that bitcoins limited supply is a double-edged sword. It can lead to an increase in price, but as a result, encourage people to hodl. This then undermines the intended use as a currency as people use it for speculative investing.
This contradictory hold versus utility issue is what Agar and his team are trying to solve with their AXIA Coin.
“The total supply is constantly decreasing based on activity both inside and outside the ecosystem. This means the more participation and activity there is with AXIA Coin, the rarer and, therefore, more valuable it can become. This ultimately provides tremendous value. It establishes a better and more innovative store of value as it offers much more than simple protection of purchasing power,” he explains.
“Deflationary tokenomics can deliver a system that creates ongoing value for holders of the currency, rather than it eroding over time.”
AXIA has expanded on this by having all fees burned within the ecosystem. The goal here is to add value as activity occurs with their coin.
“Making the currency that much more resilient to the loss of value while also providing even greater value through any form of decentralized activity,” he says.
Fighting against a system that works against us
For Agar, the ultimate purpose of his coin and deflationary cryptocurrencies is to have an economic model that fights against traditional gatekeeping.
“We live in a world where many people work very hard but wind up taking one step forward and two steps backwards due to a system that’s working against them. It is with this understanding as to why a deflationary currency rather than an inflationary one will be to the great benefit of many around the world in terms of at least protecting wealth over time.”
“The objective of deflationary cryptocurrencies is to protect against loss of purchasing power and to provide a store of value. They can also provide an additional way to conduct transactions and exchanges in a more efficient manner. Furthermore, this brings a proper level of currency competition to market, allowing individuals to determine what instrument best fulfills their own goals and objectives,” he explains.
Overall, he sees cryptocurrencies broadly as a fairer financial asset for many.
“Cryptocurrencies can be more easily accessible than other financial instruments that may be considered stores of value.”
Evaluating value to avoid risks
However, while these are lofty ideals and aims, there are risks when it comes to any kind of cryptocurrency investing.
“Knowing that if a token has no underlying value outside of pure perception and trust, its value could change at any point and time. There is obvious risk exposure there, especially knowing the industry continues to evolve. However, the tokens that provide true underlying and ongoing value as well as utility will stand the test of time.”