Inflationary tokens boost liquidity through increased circulation, while deflationary models may decrease it by encouraging holding.
Tokenomics is at the heart of cryptocurrency functionality as it defines the internal dynamics or the monetary policies hard-baked into crypto projects’ code, explaining how the asset functions and the forces likely to affect its value.
Like the concepts of inflation and deflation in economics, tokenomics relies on the principles of supply and demand. In short, tokenomics considers the economic dynamics of a cryptocurrency, such as distribution, issuance, attributes and supply.
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Source: https://cointelegraph.com/explained/how-do-inflationary-vs-deflationary-token-models-affect-market-liquidity