Tokenomics is the analysis of a cryptocurrency’s fundamental characteristics, which can help you compare tokens with each other and make better informed decisions
Whether you are a regular trader, furious degen, A long-term/short-term investor, or Airdrop Hunter, Tokenomics is the skill you need to get into the world of crypto and earn next 100x.
In this alpha rich post, We will try to discover the best method of reading tokenomics!
Token Utility 🏗️
First an the foremost part, Token Utility. Understanding it is the core of concept. We can utililize this part to understand the future supply & demand dynamics...
Here are the two thing you need to understand:
- Demand Boosters: Fee discounts, governance rights, etc.
- Supply Increasers: Incentives, rewards, etc.
- Staking: While staking can drive both supply and demand, real yield staking (e.g., $GMX creates yield from actual revenue), raising demand and lowering supply.
Let's consider Supply first 🫴
Ever thought why $SUI has more value than $SHIB even though SHIB has higher market capitalization? Perhaps, Here comes the role of Supply.
SHIB has a total circulating supply of 589,346,914,631,298 while 10,000,000,000 which is at least 6000x more than SUI!!
Using simple math:
Token Market Value = Market Cap / Circulating supply
This explains why Sui has more value than Shib....
Learning this part is important because it helps predict one to know about future valuation and how can Some factors affect the token's price...
Now coming to Demand 🤝
A token's demand depends upon many factors. In theory, Demand means the hype of investors who want to invest in that token. Clearly, A project will have to make certain moves to ensure that its product reaches higher demand.
Let's take Arbitrum and Solana as an example over here:
Lately, you might have noticed a lot of people advising you to exchange all of your assets to solana. Why? The reason was because of partnerships developed by solana. Recently, Visa announced the adoption of Solana which resulted in the price surge of Solana.
As of Arbitrum, It is all obvious! The number of projects tending to develop on it, investors reaching out for those projects, Huge community makes it clear that Arbitrum has a higher demand. Again this could result in Arbitrum being a leading competitor in Bull run....
A token is built to power an ecosystem or any other project built on that ecosystem e.g. Dapps, SocialFi etc.
As such Arbitrum plays and important role in ARB ecosystem because its holders can vote on future changes,developments etc.
Without a clear objective, A project is nothing or a memcoin project....
TOKEN DISTRIBUTION 🔁
Understanding it is important because it is the way we can oversee the future allocation....
For example, what percentage of total supply is allocated for the airdrops, pre sale, ICO etc.
Some key points to take into consideration:
- Percentage of tokens to be airdropped and the vesting period (Note that vesting is mandatory to reduce the down trend volatility of a token): Just consider the tipcoin which was trending some time ago. They airdropped a wholesome amount of tokens but never airdropped it in vesting. All tokens were unlocked and ready for sale and those who managed to fill their bags with $TIP didn't hesitate to sell them....
Here are the moments before and after the airdrop:
Before
After
- Ecosystem/Foundation tokens must be vested: This ensures that the developers and the founders of the ecosystem do not play a rug pull scam in the long run...
- Tokens for public sales should vest faster than private sale tokens: If not vested, they play a similar role like $TIP airdrop resulting in the long term down trend. Note that Private Sale round may or may not be vested because only some people/organizations participate in it.
- The lock-up period for private sales should not exceed the team's vesting period: This is the fundamental thing to be looked upon before investing in a private round. Investors use this thing to predict future prospect...
- Reduced centralization in token Distribution
Inflation Rate 🔥
Inflation of a crypto token affects its purchasing power.
In short, token inflation is that the issued token is depreciating continuously, with its circulating volume in the high market.
The main dilemma over here is that the token's growth should be aligned with the token's growth.... E.g. Although more and more Arbitrum is being unlocked which increases sign of inflation but the number of developments on the ecosystem is attracting more and more investors resulting in a long term bullish trend.
A project should not hide its inflation rate which is a good way to attract more and more people....
Valuation 🪙
So how would an interested investor know if token is worth purchasing in the current price? Valuation is the key to unlock this secret....
In Airthmetics:
Valuation = price * total offer
For example, consider a DEX built on BNB chain and at the same time, a similar DEX is already built on any other chain offering similar incentives, features etc. We can Use this to predict the future token growth by comaprison of valuation....
