Tokenomics is the study of the design and implementation of tokens, which are digital assets that can be traded on a blockchain platform. Tokenomics is important because it provides the underlying economic framework that determines the value and behavior of tokens within a given blockchain ecosystem.
One of the advances of tokenomics is that it allows for the creation of new economic models and incentives that can drive user adoption and engagement within a blockchain platform. For example, tokenomics can be used to design tokens that have specific utility or value within a particular platform, which can encourage users to hold and use these tokens.
However, there are also potential pitfalls to the use of tokenomics. For example, if tokens are not designed and implemented carefully, they can be subject to speculation and volatility, which can lead to instability within a blockchain ecosystem. Additionally, the use of tokens can sometimes be subject to regulatory uncertainty, which can create challenges for those looking to use or invest in them.
The movement of virtual tokens
💸Coins vs Tokens💸
Tokenomics is short for token economics. Tokenomics include a series of metrics relating to a cryptocurrency coin or tokens, such as supply, allocation, distribution, emission, and utility. Although they are often used interchangeably, cryptocurrency coins and cryptocurrency tokens are two very different things. Coins are more like currencies and are native to their blockchains. By contrast, tokens do not have their native blockchains, are similar to stocks, and often have specific use cases.
💰Supply And Market Cap
💰 Some cryptocurrencies like DOGE have a massive supply, which is why Dogecoin is one of the biggest cryptocurrencies by market cap, even though the dollar value of each coin is low. Other cryptocurrencies like yearn. Finance’s YFI token has a small supply, which is why 1 YFI is worth more than 1 BTC even though it has one-fourth of the market cap of Dogecoin. This is why you should always pay attention to a cryptocurrency’s market cap rather than the actual dollar value of the coin or token and think in percentage terms rather than dollar terms.
🙋♂Allocation and Distribution
🙋♂ Cryptocurrencies are created in two ways: by fair launch or by pre-mine. A proper launch is when a small community of people collectively mining a coin or token. Bitcoin, Litecoin, and Dogecoin are examples of fair launched cryptocurrencies. There are no coin or token allocations for appropriately launched cryptocurrencies. Allocation is relevant to any pre-mined cryptocurrencies. A pre-mine is when the team behind the project mints some or all of the coins or tokens before opening up the network. Once you have a sense of how a cryptocurrency’s coins or tokens were allocated, you can use blockchain explorers to see how the coins or tokens are currently distributed. 📈Vesting and Inflation📈 Vesting applies to pre-mined cryptocurrencies and refers to how the coins or tokens are expected to be allocated over the coming months or years. Unlocking too many tokens at once or within a short timeframe can sink the price action of that token in the short term. When it comes to inflation, a cryptocurrency is either inflationary or deflationary. If a cryptocurrency has too much inflation, it can reduce the value of the coins or tokens already in circulation over time. Unless the inflation schedule is exceptionally aggressive, it will have little to no effect on the short-term price potential.
💱Staking and Utility💱
When you stake a cryptocurrency as a validator or a delegator, those coins or tokens are usually locked up for some time. This can supercharge positive price action during a parabolic run. ‘Utility’ is also referred to as a use case and includes basically anything that drives demand for a cryptocurrency coin or token. More utility generally = more demand, which means the price goes up. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Have you ever wondered what makes cryptocurrencies valuable well the short answer is that they are the only assets that exist outside of the current financial system they require no middleman to transfer most cannot be censored or shut down and some even offer an unparalleled amount of user privacy the real question is why some cryptocurrencies are more valuable than others take bitcoin and Dogecoin for example Dogecoin’s code is based on bitcoins and Dogecoin has been in the news about as much as bitcoin over the last few months despite these similarities, one btc is currently worth fifty thousand dollars while one doge is worth just a few cents more often than not the reasons for such a large discrepancy between price tags is tokenomics tokenomics are one of the most important things to evaluate when analyzing a cryptocurrency and there’s something that’s often overlooked so today I’m going to take you through the various tokenomic factors you need to know about when vetting a crypto coin or token keeping these in mind will make sure you make bank instead of getting burned before we get down to business tokenomics is short for token economics tokenomics include a whole series of metrics relating to a cryptocurrency coin or token such as supply allocation distribution emission and utility it is also iessentialto note although they are often used interchangeably cryptocurrency coins and cryptocurrency
tokens are actually two very different things coins are cryptocurrencies that are native to their own blockchains notable examples include BTC for bitcoin eth for Ethereum and xmr for monero coins are used to pay fees on their native network are used to transfer value and are given as rewards to miners when a new block is mined by contrast tokens do not have their own native blockchains and can even exist on multiple blockchains
Take cream finance’s cream token for example it exists as an ERC token on Ethereum and is also a bep token on the Binance smart chain instead of being used for baseline network activities like fee payments tokens often have unique use cases that are specific to the projects that made them one of the best examples is decentraland’s mana token which is burned to purchase digital assets on the