In the context of cryptocurrencies, the maximum supply refers to the maximum number of coins or tokens that can ever be created. Once the maximum supply has been reached, a cryptocurrency will not have any new coins minted, mined, or produced in any way.
Understanding the term
The maximum supply of a particular cryptocurrency is capped by the limits defined by its underlying protocol. Therefore the maximum supply is defined earlier at the genesis block as per the project’s source code. A predefined maximum supply along with a steady issuance rate can control the inflation rate of a cryptocurrency which can also lead to its long-term appreciation. When the maximum supply is reached, it creates market scarcity which leads to deflation.
However, not all cryptocurrencies have a predefined maximum supply. Those that don’t can have tokens that can be mined or minted continuously. Ethereum is one such cryptocurrency that does not have a predetermined maximum supply. Many people confuse the term maximum supply with total supply. However, total supply refers to the coins that have already been produced (excluding the ones that were destroyed in “coinburn” events).
Maximum supply exists as some cryptocurrency projects do not release their total token supply information when they launch but may want to limit their possible future token amount.