Tokenomics

Tokenomics is a term used to describe the economics of digital tokens. Tokenomics is the value propo

What the hell does it mean?

Tokenomics is a term used to describe the economics of digital tokens. Tokenomics is the value proposition of a cryptocurrency investment and fundamentally any element that may influence the price of that cryptocurrency.

A number of indicators are used in tokenomics to assess the quality of an investment. The formation, management, and interaction of a coin's network are all covered. Tokenomics help new investors assess a project's strength, weaknesses and prospects.

Some key factors and variables that affect tokenomics are;

  • Supply
  • Utility
  • Allocation


Supply


Every project's supply is a vital factor in tokenomics, and it can have a significant impact on the initial price and subsequent upside. The supply of some tokens, such as Bitcoin, is restricted. This is done to raise the price as the total number of Bitcoins released to miners continues to decline. On the other side, some coins, such as Doge, have an endless supply. The overall amount of new coins issued per block is not limited, and the number of new coins created per block is fixed rather than decreasing.


Utility


The question of cryptocurrency utility is currently in the spotlight. Certain coins, such as the doge, were designed with no specific purpose or "use case" in mind, and thus have no underlying reason for rising demand. For tokens with no use case, the price is usually grown by word of mouth or 'hype.' This is sheer speculation based on the belief that the value of the coin will rise in the future.


Allocation


The way a token is distributed after it is created is referred to as allocation. Tokens are created through a pre-sale or a fair launch. The token is generated and the entire circulating supply is offered to investors in a fair launch, with no predefined allocation to developers or insiders. A specific number of tokens are allocated among the developers, chosen investors, and capital firms who helped fund the project during a pre-sale or pre-mine launch. In this case, fewer tokens reach the market, resulting in a lower circulating supply. Token developers often 'lock' initial liquidity during a pre-sale so that it cannot be sold for a set amount of time.


Tokenomics is a broad term referring to everything that has the potential to influence the price of a cryptocurrency. When it comes to tokenomics, there is no single 'most essential' component to focus on, but a closer look into allocation, supply, and utility is a fine place to start when evaluating a project's potential.

About the Author

Nick White
Chief Technology Officer

Nick leads the technical operations for the Anji Foundation working hands on with the developers at AnjiLabs.