Evaluating Tokenomics

By cryptne3d | Saikot's blog | 26 Apr 2022

Have you ever wondered why some of the coins you hold perform worse than others? One of the main reasons that are often overlooked is tokenomics. Even if a project has a good team or a significant investment, it can perform poorly if its tokenomics plan is not executed correctly.

What is Tokenomics?
Tokenomics is ​​an acronym for Token + Economics. Thus, it is an economic concept of a token or coin. You can think of Tokenomics as the economic environment surrounding the tokens of each project. But this idea works against society's regular economy, which the government or bankers usually control. The crypto economy is entirely controlled by code. So, this means some conditions like, "What is the token used for? What is the underline protocol? Who receives the token as a reward? All the terms are based on the project code. Tokenomics is ​​very important for any crypto project.

Matrix 1: Market Cap
Most of us in the crypto market are familiar with this term.
     Token value * Circulating supply = market cap
Looking at the market cap of any crypto token, rather than looking at the market price, is considered a good focusing point. For example:
Both Loopering and Cardano cost about $ 1, but on the one hand, the LRP market cap is about $ 1.13 billion, and on the other hand, the ADA market cap is about $ 30 billion. Marketcap is an indicator of how easily a token price can be manipulated. Since the market cap of LRP is less than that of ADA, then the market of LRP can be easily pumped and dumped as compared to ADA.
Matrix 2: Max supply
Many tokens do not have a complete supply at the time of project launching. Projects lock up some for future distribution so that the initial investors cannot dump at once or keep the market environment stable for a long time.
Basically, this matrix gives investors an idea of ​​how many tokens are yet to come in the future market or how many tokens currently exist. Note that some projects do not have maximum supply (i.e. unlimited supply).
Matrix 3: Token Distribution
Token distribution is how tokens are distributed in its ecosystem. Anyone can imagine delivering every token on a pie chart.

Each segment represents a token for a team, investor or stakes. The matrix helped us to understand how tokens were split at launch (initial token distribution). If a small number of insiders hold a lot of tokens, the price is much higher at the risk of sudden manipulation like dumps and pumps. Ideally, each project will be an entirely fair launch which means everyone will have the opportunity to buy tokens from the actual price. In this case, the tokens are widely distributed from the beginning.

Matrix 4: Private Sale
Each project raises funds in various ways before launching its token, which is done in a few steps. They often do the Rising Rounds more than once with different rules. Early rounds are usually reserved for private investors, and they can collect per token at the lowest price. This matrix shows us what value these private investors invest and how many tokens they receive in return; We can use this information to estimate how much profit they are willing to sell at any price level. For example, we are in the middle of the beer market, and we all have portfolios tied. But private investors can still make huge profits. They have entered at such a low price; They are also profitable in the deep beer market.

Matrix 6: Token Utility
There are generally six common things used for any token project. Such as:
Basically, the purpose of such a token is a coin that can be used to pay for goods and services. (Bitcoin, Litecoin)

Transaction costs
In such projects, project team users are charged some tokens for performing on the network. Ethereum, the Binance chain, would be a good example of this.

Access to services
Many projects take payment on their tokens to use their services. Example: Paying for project tokens to save and retrieve data. Such as Filecoin and Storj.

Discount or cashback
We usually see this type of scheme with Exchange, where if you hold or use their tokens, you will get some discount on a trading fee or get cash back on their tokens. For example, Binance offers you a fee to hold BNB, and Crypto.com's debit card gives its users cashback on CRO tokens.

In a proof-of-stack blockchain, you can use their tokens and be a validator, which helps increase network security and decentralization. Stakers and validators are usually rewarded in the form of more tickets.

These are projects where token holders collectively manage the network by the protocol submission to vote on different proposals. Nowadays, we often see these DeFi projects where token holders can control stacking rewards or decide which assets to add or remove. Generally speaking, the more tokens you keep, the heavier your vote will be.

These are the general token utility of the crypto industry, but nowadays, many other utilities like Metaverse, NFT etc., have boomed in the industry.

                                                           Last word
Many may have a better idea of ​​what to look for when evaluating project tokenomics. In fact, not in all sections can be perfect for any project. Tokenomics is very important because not all super tokenomics guarantee the success of a project. The success of any project depends on many other factors. If we look at the market, many projects work well with terrible tokenomics because they are protected from other factors. (But I'm not talking about Dogecoin here).
Tokenomics provides real utility within a standard token ecosystem. When a user does some research on the tokenomics of a project, they can use many websites like Coinmarketcap, Coingecko, ICOdrop and Messari to find the information they need. If some information about a particular project doesn't come out, ask the project team, but if they refuse to share it, it could be a red signal.

The article is also posted: https://bitcointalk.org/index.php?topic=5396160.msg59973370#msg59973370
The article is inspired by Coinsider youtube channel

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