Explanation of Crypto Token Supplies: Circulating, Maximum, and Total Supply

The maximum supply of a cryptocurrency is the total number of tokens that will be mined, and is usually set when the genesis block is created.

Bitcoin's maximum supply is capped at 21 million, and while anything is possible, its strict protocol and code are designed in such a way that no more BTC can be mined. Other cryptocurrencies do not have a maximum supply but may have a cap on how many new coins can be minted with a specific cadence, as in the case of Ether.

Stablecoins, on the other hand, tend to keep the maximum supply constant at all times to avoid a supply shock that could affect and fluctuate the price too much. Their stability is guaranteed by collateral reserve assets or algorithms created to control supply throughout the combustion process.

Algorithm-backed coins are designed to maintain a stable price, but they have drawbacks as they are vulnerable to unpeg risks. Additionally, non-algorithmic stablecoins like Tether may be at risk of breaking off, as happened in June 2022, showing that even coins that should offer more certainty may be at risk.

The other two metrics – circulation and total supply – also affect the price of a token, but to a lesser extent than the maximum supply. When a cryptocurrency reaches its maximum supply, no new coins can be created. When this happens, two main results are produced:

Cryptocurrency is becoming rarer and therefore its price may rise if demand exceeds supply; Miners have to rely on fees to get rewards for their contributions.

In the case of Bitcoin, the total supply is halved through a process called halving, so it is calculated that it will reach its peak supply of 21 million coins in the year 2140. As Bitcoin issuance increases over time through mining and is therefore inflationary, block rewards are halved every four years, making it a deflationary cryptocurrency.