Most threads on Tokenomics stop at beginner level.
And you're going to get WRECKED if you don't know the details.
If you want to go deep...
Here's a step-by-step guide to understanding Tokenomics completely π§΅
(+ Free resource )
And you're going to get WRECKED if you don't know the details.
If you want to go deep...
Here's a step-by-step guide to understanding Tokenomics completely π§΅
(+ Free resource )
I lost over $3,417 because I didn't understand Tokenomics.
But you don't have to.
Here's what I'll cover:
β’ What is Tokenomics
β’ Supply, Demand, and Incentives
β’ Memes and narratives
β’ Tokenomics examples
β’ Conclusion
Lets level upπ€ΎββοΈ
But you don't have to.
Here's what I'll cover:
β’ What is Tokenomics
β’ Supply, Demand, and Incentives
β’ Memes and narratives
β’ Tokenomics examples
β’ Conclusion
Lets level upπ€ΎββοΈ
The simplest lens to see tokenomics it through demand and supply.
β Supply
The Nigerian government stopped printing money
The demand was there, but the supply crashed
So the value of "cash" went out of control.
That's the power of scarcity.
But there's more...
β Supply
The Nigerian government stopped printing money
The demand was there, but the supply crashed
So the value of "cash" went out of control.
That's the power of scarcity.
But there's more...
Here's what you should watch out for in tokenomics:
β’ The number of tokens in existence.
β’ How many tokens can ever exist?
β’ Who has the initial token supply? When can they sell?
β’ How will the supply change over time?
β’ What are their policies for changing?
Also...
β’ The number of tokens in existence.
β’ How many tokens can ever exist?
β’ Who has the initial token supply? When can they sell?
β’ How will the supply change over time?
β’ What are their policies for changing?
Also...
Supply metrics you must know
β’ Supply: Number of tokens existing right NOW
β’ Max supply: Maximum number of tokens that can exist
β’ Market cap: Current price of one token * Circulating supply
β’ Fully diluted MC: Price of one token * Max supply
But why must you know them?
β’ Supply: Number of tokens existing right NOW
β’ Max supply: Maximum number of tokens that can exist
β’ Market cap: Current price of one token * Circulating supply
β’ Fully diluted MC: Price of one token * Max supply
But why must you know them?
They help predict future supply and scarcity.
For example...
Imagine that the circulating supply of a token is at 40%.
I won't feel great because there will be a later increase by 60%
And increased supply will dump the token's price.
Here are other examples...
For example...
Imagine that the circulating supply of a token is at 40%.
I won't feel great because there will be a later increase by 60%
And increased supply will dump the token's price.
Here are other examples...
β Bitcoin
There'll only be 21 Million Bitcoin in existence.
Once the cap it reached, no one can mine any more Bitcoin.
β’ Bitcoin's supply I limited
β’ Demand is rising
β’ This means the price should increase.
But here's another reason...
There'll only be 21 Million Bitcoin in existence.
Once the cap it reached, no one can mine any more Bitcoin.
β’ Bitcoin's supply I limited
β’ Demand is rising
β’ This means the price should increase.
But here's another reason...
β Inflationary tokenβDogecoin.
Dogecoin's supply is increasing every year with no cap to the supply.
This is bad for Tokenomics as there's no scarcity.
PS: The price of Dogecoin still went up in 2021 despite its bad Tokenomics.
(I'll explain why later, keep reading β)
Dogecoin's supply is increasing every year with no cap to the supply.
This is bad for Tokenomics as there's no scarcity.
PS: The price of Dogecoin still went up in 2021 despite its bad Tokenomics.
(I'll explain why later, keep reading β)
β’ The merge to proof of stake reduces the supply of ETH.
β’ EIP - 1,559 collects a portion of the transaction fees and burns it.
β’ High demand for ETH
A combination of the above means Ethereum will become deflationary despite that there's unlimited supply.
β’ EIP - 1,559 collects a portion of the transaction fees and burns it.
β’ High demand for ETH
A combination of the above means Ethereum will become deflationary despite that there's unlimited supply.
β’ The merge to proof of stake reduces the supply of ETH.
β’ EIP - 1,559 collects a portion of the transaction fees and burns it.
β’ High demand for ETH
A combination of the above means Ethereum will become deflationary despite that it has an unlimited supply.
β’ EIP - 1,559 collects a portion of the transaction fees and burns it.
β’ High demand for ETH
A combination of the above means Ethereum will become deflationary despite that it has an unlimited supply.
What is Tokenomics?
Tokenomics refers to the elements that drive demand for a token.
It's not just "token" and "economics"
It includes:
β’Math
β’Incentives
β’Game theory
β’Value Accrual
β’Demand & Supply
β’Human behaviour
Studying tokenomics = Profitable investments
But...
Tokenomics refers to the elements that drive demand for a token.
It's not just "token" and "economics"
It includes:
β’Math
β’Incentives
β’Game theory
β’Value Accrual
β’Demand & Supply
β’Human behaviour
Studying tokenomics = Profitable investments
But...
Bitcoin Halving
Your research is not completely if you've not checked the emission rate.
I.e the SPEED at which new tokens are created.
The emission rate of Bitcoin by miners slowed down because, at each halving event, the mining rewards gets cut in half.
But here's an...
Your research is not completely if you've not checked the emission rate.
I.e the SPEED at which new tokens are created.
The emission rate of Bitcoin by miners slowed down because, at each halving event, the mining rewards gets cut in half.
But here's an...
βDeflationary Token
Many coins become deflationary when supply decrease over time.
They do this by buying back the tokens and burning them forever.
Less supply should increase scarcity which in turn, increases the token's value (in theory)
Here's a real-life example...
Many coins become deflationary when supply decrease over time.
They do this by buying back the tokens and burning them forever.
Less supply should increase scarcity which in turn, increases the token's value (in theory)
Here's a real-life example...
Burberry burns its bagsπ³
They make premium handbags but some of them don't sell.
Instead of selling them at a discount, they set them ablaze
This act keeps their bags "exclusive".
How would you feel if you owned 1 out of 6 products in the world? π
Let's look at Ethereumβ
They make premium handbags but some of them don't sell.
Instead of selling them at a discount, they set them ablaze
This act keeps their bags "exclusive".
How would you feel if you owned 1 out of 6 products in the world? π
Let's look at Ethereumβ
Allocation & Distribution
The are mainly two ways the initial tokens are distributed...
/1 Pre-mined
β’ The team distributes tokens to itself.
β’ Tokens are given to insides like the teams and VCs.
/2 Fair launch
β’ Everyone has equal access, which is 100% fair
But...
The are mainly two ways the initial tokens are distributed...
/1 Pre-mined
β’ The team distributes tokens to itself.
β’ Tokens are given to insides like the teams and VCs.
/2 Fair launch
β’ Everyone has equal access, which is 100% fair
But...
What's the importance?
Insiders can dump on you and crash the token's price.
But that's why a vesting period is normally used.
Vesting is the act of restricting the sale of a token for a particular period.
You must check to know the vesting schedules for token unlocks.
Insiders can dump on you and crash the token's price.
But that's why a vesting period is normally used.
Vesting is the act of restricting the sale of a token for a particular period.
You must check to know the vesting schedules for token unlocks.
β Demand
These are the factors that make people want to buy, as well as the price they're willing to pay.
Demand is powerful.
With the current inflation, the U.S. Dollar is in high demand because of its UsefulnessβIts UTILITY.
But what factors drive the demand for tokens?π€
These are the factors that make people want to buy, as well as the price they're willing to pay.
Demand is powerful.
With the current inflation, the U.S. Dollar is in high demand because of its UsefulnessβIts UTILITY.
But what factors drive the demand for tokens?π€
We'll divide them into 3 categories...
1. Utility
2. Value Accrual
3. Memes and narratives
Should we break down each?
1. Utility
2. Value Accrual
3. Memes and narratives
Should we break down each?
Whew...Still here?
Cool ππΎββοΈ
/1 UTILITY
Here are 2 examples...
β Adoption
As crypto adds more real-world use cases, the increase in demand is INSANE.
β’ Bitcoin exploded when TSLA added it to its balance
β’ Dogecoin spiked up when AMC accepted it
And many more...
Cool ππΎββοΈ
/1 UTILITY
Here are 2 examples...
β Adoption
As crypto adds more real-world use cases, the increase in demand is INSANE.
β’ Bitcoin exploded when TSLA added it to its balance
β’ Dogecoin spiked up when AMC accepted it
And many more...
β Gas fees
This is the payment for using a blockchain network.
β’If you want to buy a token on Ethereum, you'll need ETH for gas fees.
β’ If you want to carry out any transaction on @optimismFND , you'll need Op to pay for gas.
Increased popularity = Increased demand
This is the payment for using a blockchain network.
β’If you want to buy a token on Ethereum, you'll need ETH for gas fees.
β’ If you want to carry out any transaction on @optimismFND , you'll need Op to pay for gas.
Increased popularity = Increased demand
/2 VALUE ACCRUAL
β Staking
There has been a rise if xTokens from 2021 to date.
I.e Staking the token will earn you a % of the platform's revenue.
β’ swapz @swapzDAO
β’ xstella @stellaswap
β’ sMare @MareFinance
This increased the value of the tokens.
Then we have...
β Staking
There has been a rise if xTokens from 2021 to date.
I.e Staking the token will earn you a % of the platform's revenue.
β’ swapz @swapzDAO
β’ xstella @stellaswap
β’ sMare @MareFinance
This increased the value of the tokens.
Then we have...
βGovernance
In DeFi 1.0, there were a lot of protocols that print tokens without a utility other than governance.
People usually farmed the APRs and sold the tokens.
But the APRs drop over time, and you might go to a farm with more percentage.
So how do protocols...
In DeFi 1.0, there were a lot of protocols that print tokens without a utility other than governance.
People usually farmed the APRs and sold the tokens.
But the APRs drop over time, and you might go to a farm with more percentage.
So how do protocols...
...incentivise people to HODL long-term instead of focusing on APRs?
1/ Locking
This is the mechanism I see these days.
It's simple...
You ask people to lock up their tokens (for months or years)
But note the...
β’ Locking risks
β’ And the opportunity cost of liquidity.
1/ Locking
This is the mechanism I see these days.
It's simple...
You ask people to lock up their tokens (for months or years)
But note the...
β’ Locking risks
β’ And the opportunity cost of liquidity.
2/ Holding veTokens (Curve)
@CurveFinance had a big innovation when it brought the veTokens
Ve = Vote Escrow
β’ Locking your tokens gives you voting power
β’ The longer the lock time, the more the voting power.
But that's not all...
@CurveFinance had a big innovation when it brought the veTokens
Ve = Vote Escrow
β’ Locking your tokens gives you voting power
β’ The longer the lock time, the more the voting power.
But that's not all...
3/ Holding - Farm boosting.
Many AMMs like @harvest_finance, @beethoven_x, and @Yieldz_protocol adopted this model of farm boosting.
I.e Locking your tokens enables you to vote for pools.
Protocols are fighting for governance power to benefit themselves.
Many AMMs like @harvest_finance, @beethoven_x, and @Yieldz_protocol adopted this model of farm boosting.
I.e Locking your tokens enables you to vote for pools.
Protocols are fighting for governance power to benefit themselves.
/4 HoldingβUnstake, and you lose it.
@Platypusdefi Finance introduced this interesting Ve mechanism.
Staking $PTP gets you $vePTP which offers you a higher APR on your stablecoin yields.
If you unstake your $vePTP, all your $vePTP will be lost.
Selling made hard π
@Platypusdefi Finance introduced this interesting Ve mechanism.
Staking $PTP gets you $vePTP which offers you a higher APR on your stablecoin yields.
If you unstake your $vePTP, all your $vePTP will be lost.
Selling made hard π
/5 Holding β Unlock / lock rates.
@DeFiKingdoms prevent people from dumping the game tokens by automatically locking part of it.
Does everything dump during unlock periods?
No.
Here's why...
β’ Once tokens are unlocked, everything is not unlocked at once. It's vested out.
@DeFiKingdoms prevent people from dumping the game tokens by automatically locking part of it.
Does everything dump during unlock periods?
No.
Here's why...
β’ Once tokens are unlocked, everything is not unlocked at once. It's vested out.
Memes & Narratives
Coins can pump despite HORRIBLE Tokenomics
Elon musk was strangely obsessed with Dogecoin which exploded the coin's price.
People bought hoping that he'll keep pumping the price.
The thing is...
People just buy what they think will make them money πββοΈ
Coins can pump despite HORRIBLE Tokenomics
Elon musk was strangely obsessed with Dogecoin which exploded the coin's price.
People bought hoping that he'll keep pumping the price.
The thing is...
People just buy what they think will make them money πββοΈ
Some protocols also have great Tokenomics but useless prices.
This may be caused by
β’ Poor marketing
β’ Unfavorable narrative
β’ Or looking like a rug ππ
This may be caused by
β’ Poor marketing
β’ Unfavorable narrative
β’ Or looking like a rug ππ
In summary...
β’ Master Tokenomics fundamentals. It'll help you as things get complicated
β’ See tokenomics through supply, demand, and incentives
β’ Tokenomics is not the end. Hype and narratives are much stronger forces
β’ Master Tokenomics fundamentals. It'll help you as things get complicated
β’ See tokenomics through supply, demand, and incentives
β’ Tokenomics is not the end. Hype and narratives are much stronger forces
Free resource from @thedefiedge to keep your decisions in check
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β’ COMMENT to share this with your audience πβ
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β’ COMMENT to share this with your audience πβ
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