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Yield farming, liquidity mining, and staking have become common practices in the cryptocurrency market as the DeFi ecosystem has experienced impressive growth in recent years. These features allow users to earn interest on their cryptocurrency holdings by locking them as deposits for a specific period of time.
The concept sounds appealing, but there is one big risk. It is possible that the value of the locked asset will be lowered. In other words, if the asset falls in value during the lock-in period, users will see a loss in USD.
These shortcomings gave rise to “reflection tokens” as a viable alternative. In theory, Reflection Tokennomics removes the need to lock tokens and offers benefits like staking.
Projects that support reflection tokens charge a penalty tax (calculated as a percentage) per transaction. We will then pay all token holders a fee based on the percentage of their assets.
As a result, Reflection Token holders do not need to lock their assets for a period of time to earn rewards. They earn near-instantaneous income when transactions are made in most cases, and their functionality is governed by smart contracts.
Additionally, users can deposit their Reflection Tokens into third-party lending and yield farming contracts to earn additional yield. However, while a combination of holding and staking incentives theoretically reduces sell-side pressure, this is not the case for most reflection assets.
Some of the most popular reflection tokens include SafeMoon (SAFEMOON), BabyFloki (BABYFLOKI), FlyPaper (STICKY), MinersDefi (MINERS) and EverGrow Coin (EGC).
For example, the EverGrow Coin (EGC) price has dropped nearly 98% after peaking at $0.0000039298 in November 2021. The project will receive his 2% of network fees and distribute them to EGC holders in the form of Binance USD (BUSD) tokens.
The EGC weekly chart above shows a bearish price trend accompanied by very low trading volume, suggesting that buying and selling on the network has waned after the initial hype. , implying lower rewards for EGC holders, which may have prompted them to sell their assets.
Reflection Tokens provide holders with the benefits of increasing passive income with immediate reward distribution. Nevertheless, it carries certain risks that may affect investors’ profitability. Let’s see:
Projects assesses transaction taxes when users buy or sell Reflection Tokens. In other words, first-time buyers typically pay a transaction fee that can only be recovered if the project is adopted. As a result, it can take months for investors to see profits.
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Scammers can exploit the trend of Reflection Tokens just like any other digital token. They can trick investors into paying the initial transaction tax, abandon the project in the middle, and give up all the funds they have invested.
Reflection Tokens do not guarantee consistent returns as the yield depends on the daily volume of the asset. If there is no activity on the network, the token yield can be zero.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making decisions.
