What Is Tokenomics?
The term ‘tokenomics’ is a portmanteau of the words ‘token’ and ‘economics’. Broadly speaking, it refers to all the factors that affect the value of a cryptocurrency. This may include the maximum token supply, how new tokens are created and existing ones removed from circulation, token utility, and incentives for traders.
Tokenomics is an important aspect of blockchain projects, as it allows participants to stay clear of fraudulent tokens. What’s more, the team behind a blockchain project can use tokenomics to build trust amongst its users and foster a strong relationship.
Generally, a project with strong tokenomics supports the long-term value of a token while pursuing a sustainable growth strategy. Below are several metrics to consider:
- Maximum Supply: The maximum token supply determines whether it is an inflationary or deflationary asset. For example, Dogecoin (DOGE) is an inflationary asset because it does not have a limit to its supply. Deflationary assets like Cronos (CRO) tend to have a more positive long-term outlook, as the total number of tokens becomes increasingly scarce.
- Token Distribution: During the early stages of a project, the project team decides how the tokens are allocated. This ranges from the number of tokens distributed amongst the founders to the assets used to further develop the project. With this information, traders can gain insight into the priorities of a project.
- Core Team Members: Apart from the quantifiable metrics, it is crucial to pay attention to the team behind the project. A good project often highlights the background of its members.
