I am about to create my own ERC20 just to practice what I've learnt in the tutorial I watch, so here in openzeppelin doc https://docs.openzeppelin.com/contracts/4.x/wizard, I can create a contract to create my own token with ease. So in the code, there is an option for initialSupply. this initialSupply appears in my wallet after deploying the contract and I import the token address into my metamask wallet. When I send this token to another account, the amount I transferred was deducted and the address I transferred the token to receive the amount. But what if I transfer all this token to another account, how do I own one again? Someone who know little about this said, one can set a mint function in the contract before deployment to be able to provide more token and he also told me people can exchange my token in a liquidity pool.
What am still unable to understand is:
- Do token value increase with the amount of supply I create, if yes how and if no how?
- Why do people buy token when they can create one for themselves and start using it?
- Why should I have a fix supply/unlimited supply for my token?
- Should I let others mint my token or I only should me able to mint it?
- Why do I need a liquidity pool?
Thanks in advance for answering this question.
Best Answer
Token value depends on what the market decides it's worth. If you have a lower supply of a high demand token, then that would in theory be more relatively valuable than if it were more abundant, but a low supply of a useless token is still going to be worthless. Just focus on making something useful.
Network effects. Why join a social network when I can create one for myself and start using it? Well because everyone is already on the one that exists, and that gives it value.
Fixed supply like Bitcoin may encourage your token to behave in a deflationary manner. But again, a fixed supply of something useless doesn't matter.
An unlimited supply will make your token inflationary. For example any fiat currency in theory has an unlimited supply, as the central bankers can decide to print more out of thin air.
If only you can mint it you should think hard about what your role in the network will be. Are you trying to be like an benevolent authoritarian central banker in the system? Or do you want to eventually let go of the power as your network approaches some critical mass?