Fee-on-Transfer Tokens

Fee-on-Transfer Tokens are a type of digital asset that automatically deducts a small percentage from every transaction and redistributes it to existing holders, liquidity pools, or a burn address. This built-in tax mechanism is hardcoded into the smart contract, ensuring that the fee is collected regardless of the platform used for the trade.

These tokens were popularized as a way to encourage long-term holding by penalizing frequent selling and rewarding those who keep the asset. However, they can complicate integration with decentralized exchanges and liquidity pools, as the amount received by the recipient is less than the amount sent.

This creates unique challenges for price discovery and liquidity provision, as the protocol must account for the diminishing transaction size. While they offer a novel way to automate economic incentives, they are often associated with high-risk or speculative projects.

They demonstrate the power of programmable money to enforce economic rules directly at the token level, rather than relying on external systems.