What are Reflections in Crypto?

The search phrase 'what are reflections in crypto' yields 4.36 million results in 0.49 seconds on Google. That's a lot of information out there on reflection tokens.

So, what do we mean?

Passive Income

Smart contracts in Decentralised Finance (DeFi) have been at the core of some of the fastest-growing projects, such as Ethereum, Solana, and the former Terra LUNA. Mainstream cryptocurrencies that also serve as DeFi tokens help investors make additional income through their crypto holdings. Some of the processes used in earning passive income are through staking and liquidity provision to support automated market makers such as decentralised exchanges (DEXs).

Such a process was quite complex and added to the burden of beginner traders and investors who were alien to blockchain technology and cryptocurrency as a whole. Several developers understood the plight of such people and introduced reflection tokens into the crypto finance space.

With reflection tokens, there is no need to learn about liquidity mining, staking, or yield farming. In trying to understand this new breed of digital currencies, we ask what are reflections in crypto and how do they work?

What are Reflections in Crypto?

Popularly known as rewards tokens, reflection tokens are digital assets that reward their holders using a technique that taxes transactions, with a percentage of this tax being redistributed to token holders. Holders receive tokens in their crypto wallets. Although the end result of yield farming and staking is to reward holders, reflection tokens reward holders for just having the coins in their wallets. Holders do not have to join a staking or liquidity pool before they can see additional rewards periodically. Tokens are normally distributed based on the size of holdings.

Reflection tokens have several advantages. Among them is the prevention of large price declines. Cryptocurrency LUNA crashed because large whales decided to let go of their holdings. Per the fundamental laws of economics, the more supply of an asset, the lower the price of that asset.

Due to the mechanism that taxes transactions and redistributes coins to holders, owners of a particular reflection token will hold onto their tokens for more rewards. Simply put, reflection tokens play an invaluable role in helping keep investors loyal to a particular crypto project.

Examples of Crypto Reflection Tokens

For those who want to find answers to what are reflections in crypto with an eye on the tokens, EverGrow Coin (EGC) and Reflect Finance (RFI) are examples of crypto reflection tokens. Launched in September 2021, EverGrow charges a 14% tax on transactions involving its native asset, ECG. A total of 8% of this tax is redistributed to investors. Rewards are paid in the stablecoin Binance United States Dollar (BUSD) due to the project being housed in the Binance Smart Chain (BSC). As of May 2022, EverGrow Coin has paid more than $36 million in BUSD rewards.

Reflection Finance (RFI) is a reward token housed in the Ethereum ecosystem. Reflect Finance applies a 1% fee to transactions involving RFI and automatically redistributes tokens among coin holders based on the size of funds.

Reflection tokens are here to stay and continue to add more coins to the portfolios of novice and experienced traders and investors.