# Inflation problems with Utility Tokens

Utility tokens from existing projects that adopt dual token models, such as STEPN's GST and Axie Infinity's SLP, are paid as rewards for users' activities and are used in the Dapp as in-game currency (In-Game Currency) to purchase shoes, game characters and so on.&#x20;

It operates utility tokens in this way, allowing users to upgrade their items for more rewards, or providing incentives to earn profits by encashment.

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However, in the dual token model, the question of sustainability continues to be raised in that utility tokens generally have an unlimited inflation structure with no limit to the amount of issuance.&#x20;

In the case of STEPN, GST is used to provide rewards for the move-to-earn (M2E) of shoe holders, and because the circulating volume continues to increase, the price will inevitably fall if the demand for token purchases is not greater than the increase in distribution. Eventually, it proved impossible to provide substantially stable and predictable returns. STEPN, which MAU increased from 2,500 to 705,452 from January to May 2022, has now significantly reduced its daily active users to less than 350.

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This infinite inflation token model is similar to the 'Zeno's Paradox'. The dual token model appears to be an ingenious solution, but beyond certain critical points, hyperinflation is no longer controllable, destroying the entire system.

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Of course, projects operating utility tokens operate a mechanism that burns sales revenue for items or NFT market transaction fees, and specific event products to prevent infinite inflation. However, in general, token inflation follows the form of a quadric curve (exponential function), while deflation follows a linear form, so it can be said that there is little effect on lowering inflation.&#x20;

The rate of demand growth for tokens should exceed the rate of supply growth, or the rate of inflation and deflation should be almost identical (also known as Sound Money). However, since utility tokens have strong downward pressure due to their nature, token prices are likely to fall, and falling prices lead to a decrease in rewards, which eventually leads to a decrease in new user inflow and departure of existing users, and the system collapses.

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As a result, in particular, blockchain-based game projects are operated separately from on-chain and off-chain, and when users withdraw tokens held in the game (off-chain) to their wallets (on-chain), operator charges a fee such as a tax and It often uses a design approach that lowers inflation through the this method.
