Reflection tokens are some of the best sources of truly passive income in crypto. At the same time, a lot of them are scams. So, you need to look carefully before investing in them.
In this post, I would be sharing with you, everything you need to know about reflection tokens and how to invest profitably in them.
What are reflection tokens?
Reflection tokens are cryptocurrencies that charge a tax on every buy or sell transaction, and then redistribute this tax income to holders of the token.
This tax redistribution is referred to as reflections or rewards and it could be in the same or a different token.
Reflection tokens encourage investors to HODL the asset for the long term by rewarding them for their loyalty.
Therefore, the longer you HODL your reflection token the more rewards you accumulate.
How do reflection tokens work?
Reflections tokens charge a tax on all buy or sell transactions and redistribute to current holders of the token proportionally.
Usually, a portion of the tax is also allocated to the team, for marketing, and liquidity. And the entire process is automated and managed by a smart contract.
Some reflection tokens like DMAX tax only sell transactions and others tax both buy and sell transactions. The bigger the trading volume of the reflection token, the greater the rewards the holders get and vice versa.
And those who bought the token earlier or HODL it longer tends to earn the most reward.
Furthermore, one of the beautiful things about reflection tokens is that you don’t need to do anything to earn rewards.
All you have to do is buy the token and leave it in your wallet and the smart contract will automatically credit you with your share of the reward.
How to invest in reflection tokens like a Pro
Reflection tokens offer you a great passive income opportunity, but unfortunately, many of them are scams.
So, first, you need to find the ones backed by a legit team that’s committed to the success of the project and will not pull the rug on you.
Once you’ve passed that due diligence test, determine how you want to make money with the token.
Below are the 3 ways you can make money with a reflection token.
- Price appreciation
I will briefly explain each of them below.
1. Price appreciation
The price of a good reflection token tends to increase over time as more investors discover the project and smart old investors continue to HODL to earn more rewards.
However, note that this may not necessarily be the case because the market is extremely unpredictable. So, keep that in mind.
Now buy the token as early as possible and wait until the price reaches your take-profit target then sell and move on to whatever is next in your degen-play book.
You can sell everything or just a portion of your total assets. Some people like to sell and take out their original capital with a little take-home profit and ride the rest to the moon or hell.
Just make sure you have an exit plan and strategy when you reach your take-profit target and stick to it.
However, if the token never makes it to your profit target no matter how long you HODL, then you have probably invested in the wrong project or you need to consider the other strategies discussed below.
If you want to invest in a reflection token, it’s smart to actually earn the reflections, don’t you think so?
Therefore, you want to buy a sizeable amount of the token as you can afford and HODL for as long as possible for the rewards to pile up.
Then you can sell or hold the rewards as your profit-taking strategy.
For example, with DegenMaxi (DMAX), you earn CST reflections by holding DMAX in your wallet.
Now you can decide to HODL or sell your CST reflections to a stablecoin as your profit-taking strategy.
If you decide to HODL the CST reflections, you can consider finding a way to put your CST to work too to earn even more.
However, if you choose to sell your CST reflections to a stablecoin, you can further consider staking or lending the stablecoin to earn interest on them as well.
This way, the cycle of passive income continues and you can build your crypto wealth faster.
Some reflection tokens like DMAX allow you to stake your liquidity provider (LP) token to earn more of the same or a different token.
For example, you can stake your DMAX-BCH LP token to earn more DMAX, CST, etc.
The goal is to harvest your farm rewards and convert them to a stablecoin or HODL to earn reflections on them as a profit-taking strategy.
There’re various ways you can play with your rewards and I’m sure you’ll find what works best for you based on your goals.
What does a reflection token project need to be successful?
The primary thing that makes a reflection token attractive is the size of reflections (holders reward) which is affected by trading volume.
The higher the trading volume, the bigger the reflections and the more people would want to buy and HODL the token to earn their share of the rewards.
Volume on the other hand grows with new investors and trading activities.
And investor acquisition depends on strong marketing efforts and project development.
However, one silent factor that anchors all of them is a strong and committed team that’s willing to do everything to make the project succeed and a supportive community.
From the foregoing, you can see that the main factors that ensure the continued growth and success of a reflection token include:
- Trading volume
- User growth
- Committed team
- Supportive community
All of which are interwoven and feed off of each other. With these, you can quickly evaluate the potential of a reflection token and see if it’s worth the risk.
What are the risks of investing in reflection tokens?
The major risks associated with investing in reflection tokens are the team pulling the rug on you or abandoning the project.
Other risks include:
- Token price dumping irrecoverably. This is usually caused by team dumping secretly or unfriendly whale activity.
- Project failure. The project can fail just like any other business due to a number of reasons such as poor management, lack of funding, bad luck, and a host of other potential causes.
- Hacks and bugs. The project can be hacked, exploited, and a bug could render the contract useless. Either of these is capable of causing the project to fail permanently.
Even an overextended bear market or a major global market crisis could crush any project, including a reflection token.
The best reflection token
One of the best reflection tokens to invest in right now is DegenMaxi (DMAX).
There are no team allocations, and all 500 million total supply will be used to reward liquidity providers, facilitate community growth, or burned.
There’s a 13% tax on all sell transactions and the contract automatically redistributes 7% to existing token holders, 3% for marketing and team, 2% for liquidity and 1% to burn.
One more thing that makes DMAX the best reflection token to invest in right now is that there’s tight control on inflation to avoid it being concentrated in the hands of just a few whales.
Furthermore, the project is still very very early and growing steadily. Not to mention that the team is doxxed, transparent, and committed to its success.
Reflection tokens are based on the concept of “hold to earn”, where you’re rewarded just for holding the token in your wallet.
They offer true passive income to crypto investors but not without the risks of rug pull, pump and dump, project failure, hacks, etc. that could easily wipe away your investment.
As such you need to do your own research (DYOR) and try to identify and invest in reflection tokens with strong potential for success and backed by a committed team.
Furthermore, I’ve shared with you the 3 ways you can invest in reflection tokens profitably which include:
- Buying the token early enough and selling when you reach your profit target.
- Buy and HODL a sizeable amount of the token and take the reflections as your profit in the short to medium term.
- Staking your LP token to earn more of the same or different token as a reward, then harvest and sell the reward token to take a profit.
Of course, there’re many personalised ways you can invest in a reflection token profitably, but the 3 strategies above are the most practical.
What do you think about reflection tokens? Share with us in the comments section below.