What is Tokenomics? Understanding of Tokenomics

Understanding of Tokenomics  

Tokenomics is a basic understanding of the supply and demand of Cryptocurrency. The term is made from the words token and economics combined.   

If anyone wants a crypto token that is simply a crypto coin based on a blockchain platform that can be swapped with another blockchain and gives numerous incentives to its holders. 

So, tokenomics refers to a crypto token’s economics; tokenomics refers to all of a crypto token’s features that make it desirable to investors.   

The tokenomics for a certain crypto token are usually clearly briefed in the project whitepaper, and it should help you understand the crypto token’s functioning, aim, allocation strategy, and more.   

What is a Token?  

A token is a digital unit of cryptocurrency that is used to represent a specific asset or usage on the blockchain. Tokens can be used for different purposes, the most common are security, utility, and governance tokens.  

Cryptocurrencies and tokens built on blockchain have pre-determined, algorithmically created, issuance schedules. This means that we can estimate how many coins will be produced by a specific date in the future.   

Why Is Tokenomics Important?  

There are several factors to consider when looking at crypto tokenomics. Perhaps the most important thing is to understand how digital currency will be utilized.  

Tokenomics can also be used to estimate how much an asset will be worth in the future. 

Projects can use blockchain technology to construct micro-economies. They need to figure out how tokens should work within their ecosystem to become self-sustaining.  

When it comes to tokens, the concept is different for every coin.  

Blockchain has paved the way for a wide range of applications and implementations. Tokenomics enables teams to design a new model or adapt an existing one that fits the project’s goals.

If done appropriately, this can result in a well-functioning and stable platform.  

The following are the wider concepts of Tokenomics one should be aware of. 

• Token Distribution – Projects need to distribute coins out to prospective users. If not, the network can exist but no one will be able to use it!  

Most crypto projects now include pre-mined tokens, so don’t dismiss a project just because some tokens were created before it went live.

Check to see if any wallets are storing a considerable portion of the circulating token supply, as this indicates that the whale could dump their holdings at any time, causing the token’s price to plummet. 

• Governance – Each project’s core team creates the rules for how tokens are created, or ‘minted,’ as well as how they are injected into and removed from the network. Various projects take various approaches. 

Some projects may include tokens that are held in reserve and then added to the ecosystem later as a way to boost growth or pay for system maintenance. 

• Price stability – The volatility of cryptocurrencies is well-known. Projects can combat this by ensuring that there are sufficient coins to match supply levels. This serves to keep the coin’s price consistent, encouraging individuals to use the tokens for their intended purpose.  
• Future adaptation – As the network grows and matures, the way tokens are governed may need to change. Some, but not all, have devised mechanisms for network users to influence the way tokens are managed inside the ecosystem through consensus. 

Market capitalization.  

The market capitalization of a token is the total amount of money invested in the cryptocurrency project so far. Along with the market cap, you may also check a project’s fully diluted market cap, which is the theoretical market cap if the token’s maximum supply has already been distributed.

This will give you a good idea of how much a token is worth.  

If the market capitalization is higher than a token and its circulating quantity is lesser, the more valuable it may become in the future.  

Tokenomics is a crucial subject to grasp when deciding which cryptocurrency to invest in, as the aspects involved will have a significant impact on your investment.  

However, when attempting to value a cryptocurrency, keep in mind that you should also consider the token’s historical performance, its use cases, and if possible, data gained from technical analysis. 

Shivani Mehta 4 Mar 2022

TABLE OF CONTENT

What is a Token?  

Why Is Tokenomics Important