In crypto, the term ‘maximum supply’ (‘max supply’ for short) refers to the maximum number of tokens a cryptocurrency project can ever have. It is a pre-defined coded restriction, which means that once the maximum number of a particular token is in circulation, no new tokens can possibly be created.
Maximum supply exists because some projects do not release their total token supply immediately when they launch, but still want to limit their possible future token amount. For example, they might lock some tokens for vesting purposes or staking rewards that are important for the project.
You can get an idea of how many new tokens will enter the market in future by comparing the maximum supply with the circulating supply. Simply put: if the circulating supply is 100,000 tokens and the maximum supply is 1 million, then you can expect 900,000 more tokens to enter the market in future, which might affect their price.
How do tokens reach their maximum supply?
Generally, there are two categories of tokens — mineable and non-mineable. Mineable tokens have a circulating supply that increases over time and therefore, will reach their maximum supply at some point in the future. When this will happen depends on the rewarding plans of the network’s miners.
For example, Bitcoin (BTC) has a maximum supply of 21 million but currently, only 18,934,956 tokens have been mined and are in circulation. The miners will be able to create new tokens until BTC hits its maximum supply.
Non-mineable tokens, on the other hand, sometimes have their maximum supply available from the moment they are created. In this scenario, the circulating supply is the same as the maximum supply.
However, some non-mineable tokens that use proof-of-stake (PoS) protocols are not brought to market with their maximum supply available. Instead, their circulating supply is increased through a rewarding model, which gives token rewards to the stakers to validate their transactions.
Other tokens do not even have a pre-defined maximum supply. Ethereum (ETH) is a good example — its circulating supply is constantly increasing as miners create new tokens.
Conclusion
While the above information is correct at the time of writing, we would advise you to also pay attention to new developments from crypto projects. As they evolve and find new ways to set their tokenomics metrics, their maximum supply of tokens might also be realized via a combination of the aforementioned methods, or something entirely different.
Also, remember that maximum supply is only one tokenomics metric. It is an important metric, but you must combine it with other tokenomics metrics to understand the full picture.
Learn more about tokenomics with our lessons on market capitalization, monetary policy, and token distribution.
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