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Explained: Reflection tokens and how they help projects and investors

Explained: Reflection tokens and how they help projects and investors

Explained: Reflection tokens and how they help projects and investors
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By CNBCTV18.com Oct 19, 2022 6:47:25 AM IST (Published)

Reflection tokens are perhaps the easiest way to earn a passive income. Until now, crypto projects allowed investors to generate a passive income through staking, yield farming, mining, etc. However, many of these activities involve complex processes that may not be suitable for newcomers and those less technically inclined. Enter reflection tokens.

Staying invested for the long run, also known as hodling in crypto circles, is beneficial for investors and projects alike. It ensures fewer price fluctuations and creates a sense of stability within the market. This stability could also translate into price appreciation, which is what every investor wants.

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However, getting investors to stay committed to a project is not easy; all it takes is one negative headline or a slight price dip to trigger a sell-off. One tool that can help retain a steady customer base is reflection tokens — tag along as we tell you more about these tokens and how they work.
What are reflection tokens?
Reflection tokens are perhaps the easiest way to earn a passive income. Until now, crypto projects allowed investors to generate a passive income through staking, yield farming, mining, etc. However, many of these activities involve complex processes that may not be suitable for newcomers and those less technically inclined. Enter reflection tokens.
Reflection tokens reward users with new crypto simply for holding the project’s native token in their wallet. Unlike other passive income generation techniques like staking and farming, coin holders can receive reflection tokens without moving any money, signing up to any staking pool, or even checking their crypto wallet.
How do reflection tokens work?
Reflection tokens are usually financed by taxing native token transactions. The tokens collected through this taxation system are redistributed among coin holders in proportion to the size of their holdings. For instance, the EverGrow Coin launched in September last year broke records on the BNB Chain for rapidly gaining investors through its unique reflection system.
EverGrow Coin has a 14 percent tax on EGC transactions and instantly redistributes 8 percent of the tax collected to investors. However, these rewards are not paid out in the EGC token but in Binance USD (BUSD). In the first four months of operation alone, the EverGrow team was able to distribute $33 million worth of tokens to its coin holders.
Safemoon and Reflect Finance are two more examples of projects that offer reflection tokens. Safemoon charges a 10 percent tax on native transactions, of which 5 percent is distributed to coin holders. On the other hand, Reflect charges a 1 percent fee, the entirety of which is automatically distributed amongst its users.
Benefits of reflection tokens
The benefits of reflection tokens are manifold. They help projects and coin holders alike, creating a give-and-take model conducive to all.
An easy way for investors to earn crypto
Unlike staking, mining or yield farming, reflection tokens require no input or effort from the investor. They must simply store the token in their wallet to receive a passive income stream. This makes it ideal for new investors who are not experienced with the technicalities of the cryptosphere. There is no learning curve, and they can begin earning immediately.
Hodlers create long-term price stability
If investors are rewarded for keeping tokens in their wallets, they will think twice before moving/selling their holdings. As such, reflection tokens act as a deterrent to sell-offs. Also, since users are rewarded in proportion to their holdings, reflection tokens may incentivize users to buy more coins. Together, these two factors can create potential long-term price stability for projects.
Deterrent for whales looking to influence the market
It is not uncommon for crypto whales to influence markets by making large transactions. They can send the price of a coin to the moon or cause it to hit rock bottom by moving a large amount of crypto. However, projects that employ reflection tokens charge hefty transaction fees, which can deter whales from making unnecessary transactions. The higher and more frequent their transactions, the more tax they pay.
Conclusion
Reflective tokens are an excellent economic model. They keep investors happy and create stability for projects. As such, they could undoubtedly increase in popularity in the coming years, and we should see several more projects employing this passive income generation model in the future.
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