Monday, January 30, 2023
  • Tokenomics gives the token’s value in the market and includes its functionality, objective, allocation policy and emission schedule
  • A fully diluted market cap is the measure of market capitalization upon issuance of all the coins
  • To break it down, tokenomics means a token’s economics

The success of any crypto trader lies in the ability of the trader to understand certain features of tokens in the market and what they mean. These are features such as market capitalization, price, circulating supply, maximum supply, supply schedule, vesting, date of launch, its whitepaper, e.t.c.

To break it down, Tokenomics means a token’s economics. It gives the token’s value in the market and includes its functionality, objective, allocation policy and emission schedule.

Features of a token tokenomics

Token Supply

 Token supply is in three categories or groups: Total supply, circulating supply and maximum supply.

  • Circulating supply- This is the number of publicly issued tokens in circulation. In retrospect, as of June 2022, bitcoin token circulation clocked 19 million, while Ethereum tokens in circulation are over 120 million. Circulating supply helps a trader identify actively mined tokens. In cryptocurrency, the more people that hold a coin, the stronger the decentralization aspect of the coin.
  • Maximum supply- This gives the total number of tokens that can ever be generated to the market. Bitcoin’s maximum supply stands at 21 million, while there is no maximum supply of Ethereum. Does this point pass as one of the reasons a section of people believe that Ethereum will surpass bitcoin as the most hodled coin?
  • Total supply- This is the total number of tokens already created. Total supply does not account for a token that has been burnt. Crypto burning refers to the token wholly removed from the market. 

Read: Building lifetime residual income through the Humanity NFT Ambassador Club

 

Market capitalization

This refers to all the funds invested in a token’s project. To calculate the market cap, one multiplies the current market price of a token by the circulating supply. When ranking coins by size and popularity, the market cap is among the top consideration, as coins with a higher market cap are more popular.

Crypto investors often use the market cap to evaluate the value of investing in a particular token. For example, a token with a higher market cap and low circulation can be subject to increased selling pressure in the future.

Another aspect of the market cap is known as a fully diluted market cap. This is the measure of market capitalization upon issuance of all the coins. It is calculated by multiplying the sum of the maximum of a coin by the coin’s price.

Investors use the fully diluted market cap to measure a project’s value.

Allocation and distribution of tokens

Token allocation and distribution are essential in assessing the tokenomics of a project. It gives value to the decentralization aspect of a project.

During the launch of a token, the project’s executive team decides on the distribution of the tokens. Most of the big investors in the crypto market make more money when they get to know about a token in its allocation and distribution stage.

The main categories of initial asset allocation include:

  • Public sale. Open to anyone who wants to participate in the project. 
  • Community funding. Ecosystem funding that goes back to the community.
  • Insiders. These are people who have a vested interest in the success of a token’s project. They hold shares in the project.

However, if a project has the founders only as the owners, there is a limitation to the decentralization aspect of the token.

Vesting

The vesting period is when tokens sold in the pre-sale stage are not sold at once but are released in small amounts.

Vesting, to an extent, prevents the depreciation of a token. If the distributors release too many tokens in a short period, the chances of their value depreciating are high. The distributors often award vested tokens to advisors, team members, investors and other key members running the project.

Uses of a project

A project’s utility can vary. What problems does the token solve?

 The use cases of a project increase its popularity and outline the main reason why people should trust in the sustainability of the project. Token’s use cases can range from community service, governance, a racism protest, security, e.t.c.

In conclusion, understanding the tokenomics of a project comes in handy to help an investor to make decisions on investment. Furthermore, it is a critical aspect that requires a more profound understanding t achieve success in the market.

Read: Blockchain applications Africans should be excited about

Newsletter

Subscribe my Newsletter for new blog posts, tips & new photos. Let's stay updated!

Leave a Comment

Web3 Africa

Community

We believe that the most important thing in the Blockchain revolution is the ability of people to understand and embrace the change. Our journalism standards – impartiality, truthfulness, transparency, and accuracy – will help you navigate this extremely dynamic world.

@2022  All Right Reserved.

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?