Tokenomics refers to the economic framework of a cryptocurrency. It covers the creation, distribution, utility, and governance of tokens within a blockchain ecosystem. For anyone looking to get some tokens as part of a project, understanding tokenomics is crucial, as it directly influences a token's value and the project's potential for success.
Where to start assessing a project's tokenomics model
- Read the Whitepaper
- Engage with the community on social media, meet-ups, AMA's and forums
- Make your own decision on what's the token's purpose, utility and demand within the ecosystem
- DON'T just follow the crowd
- DON'T ignore security issues
- DON'T overlook potential regulatory and compliance challenges
Here's my checklist to score a token on its model. I'll post a much more usable spreadsheet version in the comments later!
Image from Freepik
How to use the Checklist
Assign a score between 1 (poor) and 5 (excellent) for each criterion based on research and analysis like I mentioned above.
85-100: Good Tokenomics
70-84: Worth further consideration
50-69: Caution Advised
Below 50: High Risks identified
Supply Metrics
Maximum Supply
Is there a fixed or capped supply?
Is it transparent and consistent with the project’s goals?
1: No cap or lack of transparency
2: Vague cap with poor documentation
3: Capped but poorly communicated
4: Capped and moderately transparent
5: Fixed, transparent, and aligned with goals
Circulating Supply
What percentage of the total supply is currently in circulation?
Are there discrepancies in reported vs. actual data?
1: <10% or significant discrepancies
2: 10%-30%, unclear metrics
3: 30%-50%, some clarity
4: 50%-75%, mostly accurate
5: >75%, transparent and consistent
Distribution
Initial Token Allocation
Is token distribution equitable, or are most tokens held by a few stakeholders?
1: Highly centralized (>50% held by few)
2: Moderately centralized (30%-50%)
3: Moderate distribution
4: Fairly distributed but with minor centralization
5: Fairly distributed
Vesting Periods
Are vesting schedules long-term and structured to prevent excessive sell pressure?
1: No vesting or very short periods
2: Vesting periods <1 year
3: Vesting periods 1-2 years
4: Well-structured, 2-3 years
5: Well-structured, >3 years
Utility
Primary Use Cases
Does the token have essential and clear functionalities within its ecosystem?
1: Speculative with no real use
2: Limited utility with unclear demand
3: Moderate utility
4: Strong utility in a growing ecosystem
5: Essential and widely adopted use case
Integration with Ecosystem
Is the token integrated with other platforms or protocols, increasing its utility?
1: No integrations
2: Minimal integrations
3: Some integrations
4: Well-integrated with partners
5: Strong multi-platform utility
Cross-Platform Functionality
Can the token be used across multiple blockchains or platforms?
1: Single chain use
2: Limited multi-chain support
3: Limited multi-chain use
4: Broad support for multiple chains
5: Fully cross-platform
Image from Freepik
Emission and Inflation
Token Emission Rate
Is the rate of new token issuance sustainable or inflationary?
1: High inflation (>20% annually)
2: Inflation 10%-20%, poorly managed
3: Moderate inflation
4: Controlled inflation 5%-10%
5: Sustainable or deflationary
Token Sink Mechanisms
Are mechanisms like staking or transaction fees in place to reduce circulating supply?
1: No token sinks
2: Rare or ineffective token sinks
3: Basic token sinks
4: Effective but limited sinks
5: Effective, frequent mechanisms
Burn Mechanisms
Frequency and Impact of Burns
Are tokens burned regularly or tied to platform activity?
Is the burn rate meaningful?
1: No burns
2: Rare and insignificant burns
3: Irregular or low-impact burns
4: Regular burns with moderate impact
5: Regular, impactful burns
Governance
Governance Rights
Do token holders have a say in important project decisions?
Does this add value for holding the token?
1: No governance
2: Centralized governance
3: Limited governance
4: Decentralized but with gaps
5: Strong, decentralized governance
Security
Smart Contract Audits
Has the project undergone audits by reputable firms?
Have any vulnerabilities been disclosed and resolved?
1: No audits
2: One audit with major issues
3: One audit with minor issues
4: Multiple audits, some issues resolved
5: Multiple audits, all issues resolved
Historical Incidents
Are there any past hacks or issues that could undermine trust in the project?
1: Multiple unresolved issues
2: Several incidents with minimal resolutions
3: Some resolved incidents
4: One or two minor incidents resolved
5: No incidents or well-handled
Image from Freepik
Revenue Generation
Transaction or Protocol Revenue
Does the project generate revenue (e.g., fees, platform services)?
1: No revenue model
2: Minimal or unclear revenue streams
3: Moderate revenue streams
4: Diverse and growing revenue streams
5: Strong and sustainable revenue generation
Revenue Redistribution
Is part of the revenue redistributed to token holders (e.g., staking rewards)?
1: No redistribution
2: Rare or small rewards
3: Partial or inconsistent rewards
4: Regular and meaningful rewards
5: Strong, consistent rewards
Staking Rewards
Are staking APYs sustainable, or do they rely on inflationary rewards?
1: High but unsustainable APY
2: High APY but inflationary
3: Moderate, inflation-adjusted APY
4: Balanced APY with demand-driven rewards
5: Sustainable, attractive APY
Adoption and Growth
User Base and Network Effects
Is the project showing consistent growth in its user base and transaction volume?
1: Flat or declining metrics
2: Minimal growth
3: Moderate growth
4: Strong growth trends
5: Consistent, strong growth
Ecosystem Development
Are new partnerships, dApps, or integrations being added to the ecosystem?
1: No development
2: Rare or insignificant partnerships
3: Sporadic growth
4: Regular integrations and partnerships
5: Robust ecosystem growth
Deflationary Features
Supply Reduction Mechanisms
Are there meaningful token burns, transaction fees, or other methods to reduce token supply over time?
1: No reduction mechanisms
2: Infrequent and ineffective
3: Basic mechanisms in place
4: Regular and moderately effective
5: Effective, consistent reduction strategies
Market Positioning
Competitive Advantage
Does the project solve a unique problem or offer a critical market need?
1: Generic or oversaturated niche
2: Limited differentiation
3: Some differentiation
4: Unique but with competition
5: Unique, clear value proposition
Regulatory Compliance
Is the project compliant with relevant legal frameworks?
Are there risks of regulatory intervention?
1: High regulatory risk
2: Limited compliance
3: Some compliance concerns
4: Mostly compliant
5: Fully compliant
Thanks for getting this far and if you need a spreadsheet form of this checklist; there'll be a link in the comments. Let me know if I've missed anything as I'm learning as we go on this shared journey of Discovery and Convergence!
