Definition
A deflationary token has mechanisms intended to decrease the number of existing units, such as transaction-related burns or periodic supply reductions. The label is sometimes used loosely for assets with a fixed cap or declining issuance, but slower growth is not the same as shrinking supply.
How Supply Can Decline
A protocol or contract may remove units through fees, redemption or scheduled actions. To determine the net effect, compare all newly issued units with all units permanently removed over the same period. A token can burn some supply while still experiencing net expansion if minting is larger. Temporary locking also does not necessarily reduce total supply.
Key Considerations
Supply reduction does not guarantee price appreciation or protect purchasing power. Demand, liquidity and distribution remain relevant. Some tokens fund burns through transfer taxes or administrator decisions, which introduce their own costs and dependencies. Verify whether the mechanism is enforced, changeable or merely announced. Distinguish changes in nominal unit counts from changes in the economic value held by each participant.