What Are Reflection Tokens, and How Do They Work? Everything You Need to Know

Despite the downward trend in 2022, the DeFi market has grown significantly over the past few years, partly because of the development of such areas as staking, yield farming, liquidity mining, and other ways to earn passive income in crypto. In this article, we will elaborate on another DeFi innovation – reflection tokens (also known as reward tokens).

Reflection tokens distribute a percentage of every transaction back to their holders. This mechanism encourages token holders to regularly use their tokens to get rewarded for transactions on the market. The reward is paid in native tokens of the project, so the income will increase proportionally with the number of tokens in your wallet.

Any transactions with reflection tokens will incur additional fees. Most projects with this kind of tokenomics charge a fee of 10% for each transaction, which is usually distributed between all project members, its liquidity pool, and the burn wallet (to avoid inflation).

The reflection mechanism is trustless since it is controlled by a smart contract that automatically splits the tokens. The user needs only to hold the tokens and receive a profit that is proportional to its holdings. 

This process is fully transparent, as each wallet that receives a portion of the commission pool can be publicly verified in the blockchain.

Reflection tokens are a new way of earning passive income which must stand the test of time. Most projects that use such a reward mechanism haven’t been around for more than a year. This makes crypto fraud and scam issues continue to be alarming today. Always remember that every crypto investment, especially in reflection tokens, comes with a certain amount of risk. Always do your own research (DYOR).