🪙Tokenomics
All about the science of the token economy - wen Supply and Demand?
What does it mean to have good tokenomics
Tokens that sustainably increases in value over time
Token price that reflects the token economy or governance activities
Tokenomics - Economics of a token/coin. Underlying protocol (smart contract) that outlines the rules of the token economics.
Token Governance - A way to decentralise ownership with each governance token representing ownership or voting rights.
SPL Token - Solana Programming Language Token. SPL tokens can be both fungible & non fungible. Within the Solana ecosystem metadata is set for each token.
Important metrics
Market Capitalization = Token price*Circulating supply (ie not including locked up tokens)
Fully Diluted Market cap = Token price*maximum supply
Max supply - the total number of tokens in existence. On a project launch a lot of these tokens will be locked up by the owners (for vesting investing and slow release)
Why lock up tokens? Staking rewards Stop investors dumping when liquidity pools open (ie cash in on their tokens)
Monetary policy policy used to control inflation (ie token:USDT)
Reviewing token Metrics on Coin Gecko
Market cap - Current supply * current price
Fully diluted valuation - Maximum supply * current price
Circuiting Supply - x/y
x - Available - How many coins are theoretically available on the open market that can be bought at any time
y- Maximum limit - Theoretical maximum limit on how many coins will actually exist
Max supply - Total maximum supply of the token
Tokens/Currencies do not need a maximum supply!! (ie Etherium) as these tokens indefinitely increase supply they do not have a max supply - thus they do not have a diluted valuation :)
Initial token allocation
Most crypto projects, when distributing tokens, have multiple rounds of sales with different rules of price, allocation and who can participate.
The first round usually go to VCs (Venture capitalists) who pay the lowest price per token You can use these metrics to determine how willing these token owners are to sell at which price point
Why? This is to encourage venture capitalists to ape into (invest into) their project as early into the funding rounds as possible.
If a small number of insiders hold a large number of tokens (whales) the token is at risk of manipulation (ie sudden dumps or unnatural dumps)
Unlock Schedule
Lock up tokens and release them over time (ie airdrop slowly)
Airdropping a large volume of tokens will usually cause a dump
Token Utility
Usefulness of a token
1. Payment - used to pay for goods or services
2. Transaction fees
3. Access to Services
4. Discounts of cash back Staking (proof of
5. stake/be a validator)
6. Governance
If there is no use of a token (ie you cannot use the token to do anything) the token will dump!! Need to, at least, be able to spend a token or stake a token!
Important: every P2E game should have destruction!! You may potentially lose everything This is deflationary
Need to punish players (take away things from them, deflationary)
Need to have a place to spend their money
Question to ask about tokenomics:
Does supply have a cap?
Is supply increasing slower than demand?
Can supply ever decrease?
How can I use the tokens I earn?
Hype cycle
Important systems to put in place for tokenomics:
Lockups - lock up tokens & only release a certain percentage into circulation every day/year
Buy & Burn - use a % of income to buy & burn tokens
Unlocked token distribution - Allocated tokens (ie to VCs, owners, community) should be locked for a long period of time (illiquid).
Dimond theory - Use tokens to be able to buy governance tokens (ie Council and community tokens)
Example Tokenomics of large projects
Serum
Link: https://www.projectserum.com/serum-token-summary
Important concepts:
SRM token gives governance power to holders
only 8.75% of all tokens will be "unlocked" in the first year
All seed sales have long-term lockups (ie you cannot access your SRM token for a long time) this stops dumping
Buy & burn schedual
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