Something I talk about a lot is TOKENOMICS. 👛
A lot of coins that I’ve talked about in crypto have advanced tokenomics. But the big question is, what really IS tokenomics? Here’s a free guide below explaining everything about tokenomics and why it’s so important.
Tokenomics basically means ‘the demand/amount of tokens and how this increases/decreases’.
Tokenomics = Tokens + Economics behind this.
Pretty much what these things include:
– Incentives
– Supply vs Demand
– Math
– Quantity
Something that’s very important to know, is that a deflationairy or hyper deflationary token is not necessarily good. If there’s not enough utility/new income, the token dies.
It’s extremely important to understand Tokenomics, as it improves your decision making.
Let me explain Supply vs Demand.
We all know a lot of NFT’s are minted in a set amount.
For example, there’s usually 10K of a collection. Now imagine if that amount tripled, and there would be 30K of that same collection.
The price would crash, as the supply has increased.
Demand:
In the last few years, the amount of houses in the US has been rougly the same. Supply stays the same (Compare to 10K NFT’s).
About 40% of all the money honey has been printed in 2020 = Money flooded the market.
# houses stay the same, money comes in = more demand.
A few examples of increasing demand:
– Gas fees. To use a certain network, you need to have the coin, for example ETH on the ERC20 network.
– Want to buy NFT’s and #P2E on $AVAX? You need the coin #avax.
– Another great demand increasing is fun, for example in games.
Another BIG factor is adoption as well as FOMO.
When Tesla announced they’re buying #Bitcoin, it became more main stream and people FOMO’d.
ALWAYS have a look at the market cap when buying a coin. The price of one unit does not mean that much. For example:
Someone has $1K, they would buy 10M coins worth $0.0001 each, rather than 1/3rd of an ETH.
That’s why coins like Safemoon and #DOGE absolutely pumped last year.
Important stuff to know:
– Circulating supply vs dilluted – If the circulating supply is 50% for example, that means another 50% of the supply will be increased in the future; meaning a constant pressure on the price.
– Supply: How many coins are in existence at that moment
– Max supply: The amount of coins that could ever exist, maximum.
– Market cap: Circ. supply * Price of one unit
– Fully dill. MC: Max supply * Price of one unit
An example for #Bitcoin:
– Max supply of 21M
– People learning about btc; demand = increasing
– Supply not increasing
– Price should increase long term
Something else that’s important to know is emissions. What this means, is basically, how fast are new tokens printed to reach the max supply?
Bitcoin halving for example, means at every event, the reward emissions for Bitcoin are halved.
– Deflationary tokens
When the supply decreases, the token is deflationary. This is usually done by burning tokens, most of the time together with a buyback to actually burn them.
When a coin is burned, it’s gone. In theory this means the supply goes down, so price should go up.
– Inflationary tokens
The best known example would be #Doge. The supply is constantly increasing, without a max supply cap.
This is bad for the token, as even if the demand increases, so does the supply, meaning the price could go down as well.
Another factor to keep in mind is token allocation and distrubution, before and after a launch. With a fair launch, this is not the case. 100% of the tokens are for everyone. When there are pre/private sales or pre mined, tokens are distributed before the launch. This is important to know, as early investors/VCs/Team/Presalers could dump their token for a far cheaper price than the rest, causing the token to crash.
Whenever a token is vested, this means the tokens are locked for certain amounts, making it unable to sell.
One of the best ways to keep a token steady is by incentivizing long term hold.
For example rewards or bonuses for keeping tokens long term instead of selling them.
An example of this short term was with #Safemoon. Holding tokens meant you received tokens from all tx’s.
An example of a BAD token with a huge MCAP is Pancakeswap.
There’s no incentive to hold CAKE apart from printing, but this means you get more CAKE. So, people instantly sell their CAKE when it’s printed, without any real demand for the token (Just a governance token).
Something that’s been catching my eye is that there seems to be hype cycles, with tokenomics as well. What this means, every few months or so a new idea pops up and that’s the hype.
– Reflections, Rebases, Gamefi etc.
A summary:
– You NEED to know a lot about tokenomics before investing in crypto. This was a short thread, with probably 0.1% covered, but it’s a beginning.
– ALWAYS check the basic tokenomics of a token (Supply, max supply, circulating etc.)
That’s it for now! Thanks a lot for reading my guide on tokenomics. This is just a small part but it contains the most important (easy) things I can think of right now.
Hopefully it helped someone! Hope you guys have learned something from it! Don’t forget to have a look at my other (Free) guides that I’ve shared on here! Be sure to follow me on Twitter: @AltCryptoGems.