When we talk about “mintable tokens,” it is possible that you’ve heard about “mineable tokens” as well. There’s no wonder if you get confused between these two terms; they are a complicated affair, primarily because they sound very similar. While they are crucial for the cryptocurrency world today, there are some critical differences between them in terms of utility and design. The type of functions they can perform and the security risks they possess have far-reaching implications.
Keep reading to find out more about this!
General discussion on mintable & minable token
Do you know that both mintable and minable tokens produce new tokens? The only difference between them is that minting new tokens through mining involves a lot of time, effort, and resources.
As you likely know, to uphold the validity of the network, both the proof-of-work and proof-of-stake protocols use the mechanisms that users have a vested interest in. In the case of proof-of-work tokens, this investment takes the form of considerable computing energy to find the quickest solution to challenging equations to submit new transactions and win the block reward.
In proof of stake, the investment is made by users who already have a stake in the network. As a result, they are eligible to participate in a random lottery in which the winner is chosen to validate the following block and, you guessed it, receive the block reward.
The block reward is given a fixed number in each, so it is impossible to manipulate the token supply. Consequently, both the processes provide surety that the cryptocurrency has a limited supply, and the scarcity of the currency is also ensured.
Conversely, the mintable tokens are not dependent on any underlying consensus method for their supply. Instead, they are minted with the help of smart contracts enabled by platforms like Ethereum. As a result, they may be safeguarded by having a smart contract audit performed by a third party, a rigorous peer-review process that better defends the reviewed project against attack.
What do you think of the supply of these mintable tokens? Are they fixed, or are they unlimited? Let’s find out in the section below.
Types of categories of supply of mintable tokens
The supply of mintable tokens falls under two categories that are described below:
- Fixed Supply:
The fixed supply model is implemented to generate scarcity and raise the underlying asset’s value. Fixed supply is mainly referred to as deflationary because once the supply is reached, no additional tokens are minted, and the price of the token rises as demand increases.
- Continuous Supply:
The continuous supply model is considered inflationary, meaning new tokens are often minted regularly for a purpose like utilities. In a continuous supply model, improving the underlying utility and benefits—rather than raising the price—is the primary goal. Stablecoins that uphold a 1:1 peg with the US dollar similarly employ the continuous supply model, and the protocol ensures that each token’s price never rises above or falls below $1.
Prime examples of mintable tokens
Although there are various examples of mintable tokens, for now, we’ll focus on two of the prime examples – Non-Fungible Tokens (NFTs) and Stablecoins. These two can be minted on any smart contract platform, but we will focus on Ethereum, as it is one of the most popular choices. So let’s check them out!
Example 1 – Non-Fungible Tokens (NFTs)
If you’re a Web3 enthusiast, you must have heard of NFTS. They are one in a million and can’t be duplicated. You can sell any of your art forms, whether music, painting, or a tweet, anything digital on NFT marketplaces such as OpenSea.
On Ethereum, most of the NFTs are minted using the ERC-721 token standard. Therefore, to create or transfer your NFT to a different address, before selling the NFT, it is necessary to mint it on the Ethereum platform as an ERC-721 token.
As you’ve observed, there has been a spike in the creation of several NFT projects over the last year. Similar to cryptocurrencies, the NFT projects can also be made secure with the smart contract audit.
Example 2 – Stablecoins
One of the prime examples of minted tokens is the stablecoins; they uphold a 1:1 peg with the US Dollar. Therefore, the price of each stablecoin is worth $1, and the protocol adjusts the price to maintain the $1 peg. In the above section, we learned about how the continuous supply model is best suited for the supply of stablecoins.
The model is simple. When a stablecoin’s price exceeds $1, the supply is reduced to return the price to $1. Then, a stablecoin’s supply is raised to raise the price and keep the peg in place if it drops below $1.
By minting new tokens, developers and businesses can easily fund their projects and provide an economic framework for their software to appeal to people. However, the investors should do their research before making any investments because not all tokens are worthwhile investments.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.