# Deflationary Model

## How 8BIT Supply Decreases Over Time

Unlike inflationary tokens that constantly increase supply, 8BIT uses a **direct burn mechanism** to permanently remove tokens from circulation.

## The Burn Mechanism

### How It Works

```
1. Player pays 2,000 8BIT to enter Standard Weekly tournament
   ↓
2. Tournament contract receives 2,000 8BIT
   ↓
3. Smart contract automatically splits payment:
   • 50% (1,000 8BIT) → Prize pool for winners
   • 50% (1,000 8BIT) → Burn address
   ↓
4. Burned tokens sent to 0x000...dEaD address
   ↓
5. Tokens permanently removed from circulation ♨️
```

### Key Features

✅ **Automatic** - No manual intervention ✅ **Trustless** - Smart contract enforced ✅ **Transparent** - All burns visible on blockchain ✅ **Irreversible** - Tokens can never be recovered ✅ **Continuous** - Every tournament contributes

## Tournament Entry Fees (Current)

| Tournament Type     | Entry Fee (8BIT) | Burned per Entry | Prize Pool |
| ------------------- | ---------------- | ---------------- | ---------- |
| Standard Weekly     | 2,000            | 1,000            | 50,000     |
| Standard Monthly    | 10,000           | 5,000            | 100,000    |
| High Roller Weekly  | 10,000           | 5,000            | 150,000    |
| High Roller Monthly | 50,000           | 25,000           | 500,000    |

## Burn Address

**Official Burn Wallet:** `0x000000000000000000000000000000000000dEaD`

* Tokens sent here are **permanently destroyed**
* No private key exists (wallet is inaccessible)
* Reduces circulating supply forever
* Publicly viewable on [Arbiscan](https://arbiscan.io)

## Impact on Circulating Supply

### Monthly Burn Examples

#### Conservative Scenario (1,000 Tournament Entries/Month)

| Metric                  | Value             |
| ----------------------- | ----------------- |
| Tournament entries      | 1,000             |
| Average entry fee       | 10,000 8BIT       |
| Total fees collected    | 10M 8BIT          |
| **Tokens burned (50%)** | **5M 8BIT**       |
| **% of supply burned**  | **1%/month**      |
| **Annual burn rate**    | **12% of supply** |

**Effect:** Net DEFLATIONARY (12% burn vs 6% emissions = -6% supply annually)

***

#### Moderate Scenario (5,000 Tournament Entries/Month)

| Metric                  | Value             |
| ----------------------- | ----------------- |
| Tournament entries      | 5,000             |
| Average entry fee       | 10,000 8BIT       |
| Total fees collected    | 50M 8BIT          |
| **Tokens burned (50%)** | **25M 8BIT**      |
| **% of supply burned**  | **5%/month**      |
| **Annual burn rate**    | **60% of supply** |

**Effect:** HEAVY deflation (60% burn vs 6% emissions = -54% supply annually)

***

#### Growth Scenario (10,000 Tournament Entries/Month)

| Metric                  | Value              |
| ----------------------- | ------------------ |
| Tournament entries      | 10,000             |
| Average entry fee       | 10,000 8BIT        |
| Total fees collected    | 100M 8BIT          |
| **Tokens burned (50%)** | **50M 8BIT**       |
| **% of supply burned**  | **10%/month**      |
| **Annual burn rate**    | **120% of supply** |

**Effect:** EXTREME deflation (120% burn vs 6% emissions = -114% supply annually)

## Deflationary Timeline

### Years 1-5 (Emissions Active)

**Net Supply Change** = Emissions - Burns

| Tournament Activity  | Emissions | Burns | Net Change                     |
| -------------------- | --------- | ----- | ------------------------------ |
| 1,000 entries/month  | +2.5M     | -5M   | **-2.5M** (deflationary!)      |
| 5,000 entries/month  | +2.5M     | -25M  | **-22.5M** (heavy deflation)   |
| 10,000 entries/month | +2.5M     | -50M  | **-47.5M** (extreme deflation) |

**Key Insight:** Even at low tournament volume (\~500 entries/month), the token becomes **net deflationary** during emission period.

### Year 6+ (Zero Emissions)

**Net Supply Change** = 0 - Burns

* All burns directly reduce circulating supply
* No new tokens minted from rewards pool
* Pure deflationary pressure
* Scarcity increases over time

## Price Impact of Burns

### Direct Burn Creates Scarcity

Unlike buyback models that rely on market conditions, direct burning guarantees supply reduction:

**Example:**

* 1,000 players enter tournaments
* 10M 8BIT in fees collected
* 5M 8BIT burned immediately
* **Constant deflationary pressure regardless of market sentiment**

### Supply Reduction Increases Scarcity

**Basic Economics:**

* Same demand + Lower supply = Higher price
* As tokens burn, remaining tokens become more valuable
* Deflationary assets tend to appreciate over time

**Example Projection:**

| Year | Starting Supply | Tournament Burns | Net Supply                          |
| ---- | --------------- | ---------------- | ----------------------------------- |
| 0    | 200M            | 0                | 200M                                |
| 1    | 230M            | 60M              | 170M (net -30M)                     |
| 3    | 230M            | 180M             | 50M (net -150M)                     |
| 5    | 200M            | 300M             | **Net circulation heavily reduced** |

*Assumes moderate growth in tournament activity*

## Comparison to Other Models

### Typical Token Models

| Model            | Supply Over Time  | Examples                          |
| ---------------- | ----------------- | --------------------------------- |
| **Inflationary** | Always increasing | Most PoS chains, gaming tokens    |
| **Fixed Supply** | Never changes     | Bitcoin (eventually), many tokens |
| **Deflationary** | Decreasing        | **8BIT**, BNB, ETH (post-merge)   |

### Why Deflationary is Superior for Gaming

**Problem with Inflationary:**

* Constant sell pressure from emissions
* Token value decreases over time
* Late players earn worthless rewards

**Problem with Fixed Supply:**

* No mechanism to reward players
* Can't sustain play-to-earn model

**Deflationary Solution:**

* ✅ Rewards players during distribution phase
* ✅ Burns offset inflation
* ✅ Long-term holders benefit from scarcity
* ✅ Aligns player and investor incentives

## Real-World Deflationary Examples

### Binance Coin (BNB)

* **Mechanism:** Quarterly burns from exchange fees
* **Result:** Supply reduced from 200M to \~150M (25% burned)
* **Price Impact:** $15 → $600+ (4,000% gain)

### Ethereum (ETH)

* **Mechanism:** EIP-1559 burns base fees
* **Result:** Net deflationary since "The Merge"
* **Price Impact:** Positive sentiment, reduced sell pressure

### 8-Bit Arcade (8BIT)

* **Mechanism:** 50% of tournament fees → direct burn
* **Advantage:** Burns tied directly to platform usage
* **Sustainability:** More players = more tournaments = more burns

## Burn Transparency & Tracking

### View Burns in Real-Time

1. [**Burn Address on Arbiscan**](https://arbiscan.io)
   * See exact balance of burned tokens
   * View all burn transactions
   * Track burn rate over time
2. [**TournamentManager Contract**](https://sepolia.arbiscan.io/address/0xe06C92f15F426b0f6Fccb66302790E533C5Dfbb7)
   * View burn transactions
   * See entry fee amounts
   * Verify automatic execution
3. [**8-Bit Arcade Dashboard**](https://8bitarcade.games/stats) (Coming Soon)
   * Total tokens burned
   * Monthly burn rate
   * Historical burn chart
   * % of supply removed

### Burn Metrics

Track these key metrics to understand deflationary impact:

* **Total Burned:** Total 8BIT sent to burn address
* **Burn Rate:** Tokens burned per day/month
* **% of Supply:** Percentage of max supply burned
* **Net Inflation:** Emissions - Burns (positive = inflation, negative = deflation)

## Long-Term Supply Projection

### Conservative Path (Low Tournament Volume)

```
Year 0:  500M max supply, 200M circulating
Year 1:  170M circulating (+30M emissions, -60M burns)
Year 5:  50M circulating (+150M emissions, -300M burns)
Year 10: 20M circulating (0 emissions, -30M burns)
Year 20: 5M circulating (0 emissions, -15M burns)
```

**Result:** 99% supply reduction over 20 years

### Moderate Path (Medium Tournament Volume)

```
Year 0:  500M max supply, 200M circulating
Year 1:  110M circulating (+30M emissions, -120M burns)
Year 5:  Approaching minimum supply
```

**Result:** Extreme scarcity within 5 years

## What This Means for Token Value

### Supply & Demand Dynamics

**Demand Drivers (Buying Pressure):**

* Tournament entry requirements
* Player need to participate
* Investor speculation
* Staking requirements (future)
* NFT minting (future)

**Supply Factors:**

* New emissions (Years 1-5 only)
* Burns (continuous, forever)
* Lost wallets (permanent reduction)

**Net Effect:** Demand increases + Supply decreases = **Price appreciation**

### Deflation Incentivizes Holding

**Investor Psychology:**

* "Supply is decreasing, my tokens become scarcer"
* "No reason to sell, it'll be worth more later"
* "I'll hold and stake for passive income"

**Result:** Reduced sell pressure → More stable price → Higher valuations

## Why 50% Split?

### Tournament Fee Allocation

**50% to Prize Pool:**

* Ensures attractive prizes
* Incentivizes player participation
* Immediate value to winners

**50% to Burn:**

* Reduces circulating supply
* Benefits all holders long-term
* Creates deflationary pressure

**Why not 100% to prizes?**

* Wouldn't create deflationary pressure
* Token would be purely inflationary
* No long-term value accrual

**Why not 100% to burn?**

* Prizes would be too small
* Players wouldn't participate
* Platform wouldn't grow

**50/50 = Perfect Balance** ⚖️

## Future Deflationary Mechanisms

Additional burn sources being planned:

### NFT Badges (Phase 3)

* Mint exclusive achievement NFTs
* Pay 8BIT to mint
* 50% of minting fees burned
* Creates new burn source beyond tournaments

### Governance Proposals (Phase 4)

* Submit platform proposals
* Small 8BIT fee to prevent spam
* 100% of fees burned

### Premium Features (Future)

* Custom usernames
* Profile customization
* Exclusive games
* All paid in 8BIT, 50%+ burned

## Conclusion

The deflationary model ensures:

✅ **Long-term sustainability** - Burns offset emissions ✅ **Value accrual** - Remaining tokens become scarcer ✅ **Holder benefits** - All holders benefit from burns ✅ **Aligned incentives** - Players and investors both win ✅ **Transparent & trustless** - Smart contract enforced

**As adoption grows, deflationary pressure increases, creating a positive feedback loop for token value.**

## Next Steps

* [Emissions Schedule](https://docs.8bitarcade.games/tokenomics/emissions) - When new tokens are created
* [Market Scenarios](https://docs.8bitarcade.games/tokenomics/market-scenarios) - Price projections
* [Token Distribution](https://docs.8bitarcade.games/tokenomics/distribution) - Where tokens go
* [Tournaments](https://docs.8bitarcade.games/earning-crypto/tournaments) - How to contribute to burns

***

*All burns are permanent, transparent, and verifiable on the Arbitrum blockchain. View the burn address anytime: `0x000000000000000000000000000000000000dEaD`*
