This is probably one of the most empowering posts I’ll publish.
Tokenomics, token distribution, & governance. Because all 3 parameters affect the price, as much as any macro / micro level event can: if not more.
Every protocol / coin has a set number of coins that will ever exist ( in theory) when it launches. Sometimes all coins are released at the same time. Other times they are mined. Other times coins are released on an emissions schedule. Other times they’re burnt. Other times they’re minted. It varies.
The token distribution upon a coin’s launch, really determine who will be in control over the chain, project, protocol, etc during it’s early life cycle.
The emissions / mining schedule will / may determine who be will in charge during the growth stage of it’s life cycle.
And usually, finally, retail investors may get a chance to have some input on the coin’s project’s or protocol’s governance during the maturity cycle. (IF you moved your coin’s off an exchange, leaving your coins on a exchange equals you giving the exchange a proxy vote for your voice).
So, how does token distribution affect price besides just the circulating supply? Well, minting / burning mechanisms are usually put up to a vote. Stakeholders vote and the protocol executes accordingly. I’ve seen projects get wrapped up by greed so often and end up shooting themselves in the foot because of this.
Network upgrades are also voted on. The big EIP-1559 upgrade (which is delayed, and I called that back in Jan/Feb) was voted on and what a contentious vote that was!
For staking protocols, the stakes are even higher. Your stake = your voice. If there are any changes to rewards, minting, even balancing issues, the ones with largest stakes have largest voices.
Everyone is touting low gas fees, low TX fees, speed, and DeFi / Smart Contracts as measurements of success or potentials for success.
But what about the token distribution and it’s affect on price? Just like we see with GME / AMC, if the leadership of a project has the biggest voice, they’ll issue new shares (sorry coins) to boost TVL. Suddenly your coin is worth 1/2 what it used to be. Or worse, do a reverse split (token / coin burn) and artificially inflate the price per share (sorry coin) and give short positions more ammo.
Look at the token distribution on some of these chains. I never got into Solana, partly because I believe Cardano is going to smoke most blockchain tech out of the water. Partly because I don’t see the need for Solana to exist when other protocols are popping up like mushrooms that fill the same niche. Reasoning aside, now that I know 48% of all SOL will go to insiders, then I am basically, as an investor, and exit strategy. Pure & simple.
And that’s the scariest thing about MOST of these new blockchains / protocols. With traditional investments, it could take upwards for years for VCs and early investors to cash in on their early investments via exit strategies (like IPOs or private sales).
With DeFi, it can be overnight. Exit strategy - “An exit strategy may also be executed when an investment or business venture has met its profit objective. For instance, an angel investor in a startup company may plan an exit strategy through an initial public offering.” Remember this during the next "IDO - Initial DeX (Decentralized Exchange) Offering.
Finally we come to tokenomics. The value of any coin / token / protocol / project based on its current & future circulating supply. If X coin was to have a vote & suddenly every whale on the network agrees to issue / mint more X coin there is fuck all you can do.
Side note- is it even possible to issue more shares IF the BTC reaches consensus on a proposal like that? Food for thought.
You catch my drift though. I was involved with an uber small position on a DeFi project last summer & the emission schedule dropped 2X the circulating coins in one massive emission (air drop to early investors). I believe the investors got in around .09¢. The protocol was worth well over $3+, after the emission? when insiders sold? .89¢! THEN they published an emissions schedule when people went mad calling out their bollocks.
Needless to say, it never fully recovered.
So be extremely wary / careful of projects, protocols, coins, blockchains, or tokens (they’re usually one and the same) that do not have a balanced distribution.
And that is one of the biggest downfalls of blockchain tech. 90% of all blockchain tech have an extremely unequal token distribution.
So let’s not delude ourselves into thinking this is any different than traditional finance in that respect.
Your bubbling bursting cynic,
OGF
As always : THIS IS NOT INVESTING ADVICE. DO YOUR OWN DUE DILIGENCE AND RESEARCH. THIS IS JUST ME SHARING MY STORIES AND views / news updates.
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