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    Home » Articles » What are Reflection Tokens in Crypto? Easily Explained
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    What are Reflection Tokens in Crypto? Easily Explained

    February 9, 20237 Mins Read
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    Table of Contents

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    • What are Reflection Tokens in Crypto
    • How Reflection Tokens Work
    • Advantages of Reflection Tokens
    • Drawbacks of Reflection Tokens
    • Examples of Crypto Tokens with Reflection
      • Reflect Finance
      • Safemoon
      • EverGrow
    • How to Find Reflection Tokens
    • How to Buy Reflection Tokens
    • Conclusion

    There are many different ways to earn money passively in the decentralized finance world.

    Some like to delegate their crypto to a staking pool or earn interest by lending their assets. But far less people know that you can also earn rewards by doing, well… nothing.

    Reward tokens or reflection tokens reward users by simply owning them from every transaction made on the given network.

    The reflection mechanism was newly introduced into the cryptocurrency industry in 2021, and since then, it got thousands of users who enjoy these easy rewards.

    In this article, you’ll find out why, as we’re about to dive deep into reflection tokens in crypto, how do they work, and give you some popular examples.

    What are Reflection Tokens in Crypto

    Reflection in crypto is based on mathematical reflexive relation. This means that the particular crypto coin or token “points” to itself. It’s a self-reflection.

    A reflection token (sometimes referred to as a reward token) is any token that rewards its holders by adding new crypto to their wallets.

    However, reflection tokens aren’t like cashback or similar rewards programs. They pay token holders these rewards regardless of whether or not the user has made any transactions, delegated to a staking pool, or locked their assets.

    This makes them a really lucrative investment, as you can buy some token that has this feature, send it over to your hardware wallet, and wait for your desired return. While waiting, your tokens are ready to be sold at any moment while also earning rewards.

    How Reflection Tokens Work

    But as you might guess, the rewards have to be paid from somewhere.

    Reflection is financed by taxing network transactions. Therefore, these coins typically have higher transaction fees (gas fees).

    The fee is usually up to 10%, from which the reflection is paid. But service fees are present on many different networks, so it’s not a big deal since you are also getting a part of the paid fee back.

    The fees charged are then immediately redistributed to investors, usually according to the size of their holdings. The reward also can be in another coin than the native token you hold. For instance, in stablecoin or a completely different coin.

    However, sometimes only a certain percentage is paid directly to investors, and the rest goes, for instance, to liquidity pools or is burned.

    But the distribution of reflections happens instantly, thanks to the advanced blockchain technology. Thus as soon as a transaction is confirmed, rewards are distributed.

    Advantages of Reflection Tokens

    Reflection tokens help stabilize a coin’s supply. Since earning rewards encourages holders to hold. This is also promoted by the higher fees, which prevent large price drops, reduce volatility, and keep investors committed to the project.

    Another great advantage is lower entry barriers.

    Mining crypto is completely out of reach if you don’t own high-end hardware. Lending platforms or earning programs might have a minimum staking amount and make you lock your funds. But reflection tokens are open to everyone, and the reward system is fair, distributing rewards proportionally.

    Drawbacks of Reflection Tokens

    Although you are not forced to hold the tokens or lock them for longer periods of time due to the higher taxation, selling shortly after buying means losing a part of your money.

    And also, there is a big market risk, just like any other investment, their value can fluctuate based on market conditions.

    Examples of Crypto Tokens with Reflection

    Reflect Finance

    The pioneer of this concept was reflect.finance, which was launched in early 2021. RFI is a reflection token built on the Ethereum network.

    The Ethereum network is known for its high gas fees, and on top of that, a 1% transaction fee is applied to every transaction.

    The fee collected is automatically distributed among holders. The amount received at each distribution depends on the quantity held. 

    In addition to this passive income, users can also stake their cryptocurrencies or use their tokens for yield farming. What’s best is that neither affects receiving reflection rewards; double rewards for you. 

    Safemoon

    Safemoon came soon after RFI. The Safemoon token applies a 10% fee on every transaction.

    • 5% is immediately distributed to investors.
    • The other 5% is going to Safemoon’s liquidSafemoon’s

    Unfortunately, it cannot be said that Safemoon is a good investment at this moment. A lot of things have happened since the last year’s launch.

    Syear’s essential employees have left. Several lawsuits have been filed against the project. And it is now being referred to Safemoon as a “pump and dump” or a “rug pull” scheme. Since Safemoon lost 90% of its value in a matter of days. 

    Safemoon price chart
    SafeMoon price chart

    EverGrow

    EverGrow launched in September 2021 and quickly gained traction. At the peak, there was $100 million traded daily in EGC. But that slowly fade away.

    The EverGrow token, based on BNB Smart Chain, charges a 14% fee on every transaction.

    • 8% is instantly distributed to investors;
    • 2% is sent to a buy-back wallet;
    • 2% is transferred into the liquidity pool;
    • 2% is sent to the development fund for marketing and development costs.

    But what is special about EverGrow is that it pays the token reflection in BUSD instead of its native EGC token. BUSD is a stablecoin pegged to the US dollar that you can instantly exchange in hundreds of different trading pairs.

    How to Find Reflection Tokens

    Before you can buy your first reflection crypto, you have to find some. Although we tried, we didn’t find any website that keeps track of or creates a list of reflection tokens.

    Unfortunately, you’ll have to find the tokens yourself. But here are some tools that can help you with that.

    • Social media can help you find new hidden gems. Especially Reddit is really good for this. There are also multiple subreddits focused on reflection tokens.
    • Use token trackers like CoinMarketCap or DEXTools. Each token on CoinMarketCap has its own description, if the token has a reflection, it’ll be mentioned there. DEXTools can help you search through all the networks at once to find some reward tokens.

    How to Buy Reflection Tokens

    Reflection tokens are usually accessably on DeFi. But you can find some of them on centralized exchanges as well.

    But this makes the buying process a bit more complicated since you have to create a wallet, send your funds there, and then exchange them on a decentralized exchange.

    The creation of your wallet is nothing difficult, and we really recommend going with MetaMask. If you need any help, here is our guide on creating a MetaMask wallet.

    Then visit CoinMarketCap to check which exchange offers your favorite reflection token. Just search for the token there and scroll all the way down to the “Market” section.

    RFI on CoinMarketCap

    Most often, it will be PencakeSwap for Binance Chain projects or UniSwap for Ethereum-based projects.

    Your wallet must be loaded with the native coin of the given network. This means BNB for the Smart Chain or ETH for the Ethereum network.

    Conclusion

    Reflection tokens are a relatively new concept in the world of cryptocurrencies. But although the vision of easy passive income seems great, many can use this strategy to attack investors and users to scammy, useless projects.

    So make sure to do your research before investing your hard-earned money. You can check our guide on spotting rug pulls, which provides valuable information about researching crypto projects.

    Also, remember that the rewards gained through the distribution are also subject to income tax, depending on your country of residence. So even crypto reflections are taxable.

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