What is token sink?

A token sink is any mechanism that removes tokens from active circulation. Examples include fees paid for using a service, tokens spent on purchases, tokens destroyed, or tokens locked for a period. Sinks matter because they balance the new tokens being created, and without them supply can outgrow demand and weaken the token's value.

How it works

Supply changes by what comes in minus what goes out. Sources, such as emissions and rewards, add tokens, and sinks remove them. If sinks are smaller than sources, circulating supply keeps rising. If they are larger, supply shrinks. A healthy design often ties the sink to useful activity, so more usage removes more tokens.

The trade-off is that sinks must feel worthwhile to the user. A fee that gives nothing back is simply a cost, and people will avoid it. Sinks that give a service people want, such as access, upgrades or priority, are more likely to be used. A permanent sink, like a burn, differs from a temporary one, like a lock, because locked tokens can return to circulation later.

Example

Say a network pays out 1,000 tokens per day as rewards. Users spend a fee of 2 tokens per transaction, and there are 300 transactions per day, so 600 tokens a day are removed. Net supply grows by 400 tokens per day. If activity doubles to 600 transactions, the sink removes 1,200 and net supply falls by 200 per day. The balance point is 500 transactions. These are illustrative numbers.

How to model it in Machinations

Draw a Source for rewards feeding a circulating-supply Pool, and a Drain for fees connected to the same Pool. Make the Drain's rate depend on a Register for the number of transactions, using a state connection. Set the fee per transaction as a Lever. Play and chart the Pool, then increase the fee or activity Lever and find where supply stops growing.