Within a decade, cryptocurrency acquired a major capital stake because of its promising use cases but it is until recently that the prices touched an all-time high of $19850.11 in November 2020.
This recent increase happened due to the recent innovations occurring in decentralised finance such as yield farming, staking, and liquidity mining are some of the famous ones.
Today, we are going to explore one such decentralised innovation that is What are reflections in crypto?
Reflections in crypto
Reflections or Reflection tokens came into the picture quite recently in the year 2020-2021 and are currently the fastest growing projects in the decentralised finance space.
It can be understood as a cryptocurrency that rewards the holder of the token some percentage by applying a mechanism where transactions should be taxed and if they are then some amount from this tax charged is distributed to the holders of the token as a loyalty.
The important thing to note here is that only holding a particular cryptocurrency token within your account will not make you eligible for the Reflection tokens as it is only granted on taxed transactions.
The reason behind implementing this Reflections mechanism is that relatively new cryptocurrencies take time to establish a price point related to their use cases and properties.
In this price discovering phase the prices fluctuate a lot due to the lack of brand intrinsic value in the crypto space. Reflections eliminate these sudden price drops and provide to hold the investors long term by sharing the margins with them.
The concept is not new as Defi(Decentralised Finance) tokens are present that allow investors to generate extra profit margin through yield farming, staking, liquidity mining, etc. Reflections become an additional concept to earn a fair profit share in this category.
Working of Reflections Mechanism
Now when you get the idea of What are Reflections in Crypto, it is crucial to have a working understanding too about it.
There are three major concepts that these Reflection tokens used to distribute the extra cryptocurrency token percentage that is liquidity pool, collected transaction tax, and sometimes the coin burn wallet.
General transaction tax charged by most of the Reflections tokens lies on the 10% mark. Hence an investor gets recursive profit gains from holding reflections and coin burn occurs over some time frame to generate additional margins.
The reflection works on smart contracts and hence remains completely decentralised and trustless so it automatically manages the equal distribution of all taxed amounts, a liquidity pool, and coin burn into the investor’s wallet.
The only thing concerned to the investor side is to hold the reflections and earn with it. There is one more thing that concerns the investor which is to manage the crypto wallet carefully and constantly try to do the transaction with the relative reflection’s token.
There are several other benefits an investor gets with the “hold and earn” concept of reflections.
These concepts might not be fully understood to you if you are a complete beginner but you get a thorough understanding of the whole concept if you attentively learn what are crypto reflections in crypto in the above section of this article.
- Earn yield without staking
- Buyback and burn mechanism
- Defi yield generation
- Fair distribution
- Transparent investing contracts
- Limit expansions
These above-mentioned beneficial concepts are more than enough to know the importance of Reflections and their benefits help both investors and respective cryptocurrency.
Merits of reflection mechanism
As mentioned in the above sections, the primary concern of implementing the reflection mechanism is to control the excessive price movements that occurred due to creating high selling pressure and not involve any irregularities from the currency use cases and performing sides. But during the implementation of the concept, some major merits also came to light that helps one understand the depth of what are reflections in crypto. Let’s discuss these merits individually below:
As the transaction phases such as fee generation and distribution are bound into one smart contract it eliminates two major things that are first, no need for approval from any external sources, and secondly, fewer nodes are used by the transaction. This security feature leads to the above-mentioned benefits such as Earn yield without staking, Buyback and burns mechanism, Defi yield generation, Fair distribution, Transparent investing contracts, and limit expansions.
The crypto-dealing allocation model of other cryptocurrencies differs from that of reflection tokens because of the encouraging mechanism it adopts for its procedures. The mechanism works in such a way that it automatically charges 10%(charges depending on individual reflections) tax per transaction and then redistributed thoroughly within the investors, liquidity pool, and marketing and development fees as per decided terms. This whole procedure enhances the allocation model transparency and each wallet receiving the percentage has its details publicly available on the blockchain. In this manner, accountability and tracking become more reliable.
Bear Market Advantage
The hold and earn mechanism plays an important role in the bear markets too. With its constant rewarding capabilities, it can hold a larger investor base and can avoid the selling pressure that is generated through bear impact and not independent of the fact that crypto is performing well or not. In this condition, if the reflections are returning constant and well rewards the investor knows that the asset is performing well and it’s the bear market that is degrading the prices. Hence with reflection in place investors can avoid uncertain bear signals of the market and hold the position for higher profits.
Demerits of reflection mechanism
No matter how well an idea seems worth there are always some irregularities that it comprises and the same is the case with reflection tokens.
It is a relatively new concept and requires more development before it becomes an obvious property of almost all crypto projects.
Although most of these irregularities are functioning-based and more complicated, here we are going to discuss some simpler ones based on the point of view of understanding what are reflections in crypto in terms of investing.
Lack of testing data
Reflection tokens are still a very new concept hence not enough data is present to conclude whether it is a concept of any worth or not.
Ease account backtracking
With the data of distribution available publically of awarded amount as well as the wallet it gets on the blockchain, there are still chances of snooping, fishing, or eavesdropping hacking activities as someone can backtrack the account.
Although hacking an account permanently or from another device is next to impossible with crypto, these above hacking methods are based on stealing information directly from the account owner.
High latency and transaction fees
The biggest issue of crypto not being used in physical transactions is its high latency during transactions and also complicated and high transaction fees.
With the reflection token placed, the latency is going to be increased more as the distribution chain is also connected with the transaction smart contract.
Also, the tax deductions on each transaction are about 10% roughly of newly adopted reflection tokens, which is quite high as per normal crypto transactional charges.
Some Popular Reflection Tokens
Let’s have a thorough look at some of the popular crypto projects that implemented reflections that seemed to be genuine when we did our research but we recommend don’t rely solely on us as it is a high-risk area to invest in reflection tokens because it is relatively a quite new concept within the crypto ecosystem.
The below-mentioned reflection tokens provide you with underlying practical knowledge of what are reflections in crypto and their profound workings.
SafeMoon is the first cryptocurrency that implemented the reflections mechanism. It was launched in early 2021 with currently 600 trillion coins in circulation and has a market capitalization of more than 2 billion dollars.
They charged 10% transactional fees where the 50% is distributed among inventors while the other 50% goes into the crypto’s liquidity pool to ensure there is enough liquidity for buyers and sellers.
It is recently in the news due to its unique implementations. In Reflection Finance, they charge only 1% per transactional taxed amount and that too distributed 100% among the investors. The distributed percentage is decided on the number of tokens an individual investor holds in their crypto wallet.
Evergrow Coin was launched in September 2021 and registered an exceptional mark of highest growing constant investor in the Binance smart chain ecosystem.
It charges 14% of transaction fees and the 8% is immediately distributed to the investors. It is an attraction because of its unique implementation that is not providing direct rewards on holding but instead pays out in stablecoin Binance USD(BUSD). It paid 35 million dollars within 5 months of its launch as reflections.
Since the tiki token launched in June 2021, it registered a record-breaking momentum in the Binance smart chain ecosystem. It was released as the first ever auto-claim BNB.
The reason for its success is its unique approach of providing a Tiki protocol system that automates the claims of BNB redistribution.
It charges 15% fees per transaction where 5% goes to the Pancake Swap to maintain the price floor while the other 10% is diluted and distributed back to investors with a wallet containing a minimum of 10000 tiki tokens.
Read: Best crypto exit strategy of 2022
Frequently Asked Questions(FAQs)
Are Reflections safe to trade?
ANS. It is a relatively new concept hence the transaction fees are quite high and also the cryptocurrency that uses them is also not much of existence. Hence it is advisable to do the research well as it is a high-risk range even within the crypto world.
Are reflection rewards liable for taxation?
ANS. Yes, one is liable to pay tax on any income that is generated through the means of any kind of lending activity.
Reflections is a quite recent Defi(Decentralised finance) concept that saves cryptocurrency from uncertain market fluctuations by providing rewards to investors on their holdings.
This is quite a surface of what are Reflections in Crypto. In this article, we provide you with in-depth knowledge about it so that even a beginner crypto investor can understand.
The genuine doubts are also considered and tried to resolve with well-researched facts and statistics.