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What is Tokenomics? A (Short) Guide to Tokenomics

⚡Crypto Guide 1: Since most of trade on a daily basis and look out for that one GEM which can make 10x-20x..100x.One of the important thing to look out for while selecting a project is its tokenomics. So let's deep dive into, What tokenomics is, and it's Importance

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1: What is Tokenomics?

Tokenomics is a term that captures a token’s economics. It describes the factors that impact a token’s use and value, including but not limited to the token’s creation and distribution, supply and demand, incentive mechanisms, and token burn schedules.

1.1: For crypto projects, well-designed tokenomics is critical to success, Crypto projects should carefully design their tokenomics to ensure sustainable long-term development

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2: Tokenomics at a glance 👀

Blockchain projects design tokenomics rules around their tokens to encourage or discourage various user actions.

Unlike fiat currencies, the rules of tokenomics are implemented through code and are transparent, predictable, and difficult to change

2.1: Let’s look at Bitcoin as an example. The total supply of Bitcoin is pre-programmed to be 21 million coins. The way bitcoins are created and entered into circulation is by mining. Miners are given some BTC as a reward when a block is mined every 10 minutes or so

2.2: The reward, also called block subsidy, is halved every 4 years. Since January 3, 2009, when the first block, or the genesis block, was created on the Bitcoin network, the block subsidy has been halved three times from 50 BTC to 25 BTC, 12.5 BTC, and 6.25 BTC currently

2.3: Based on these rules, it’s easy to calculate that around 328,500 bitcoins will be mined in 2022 by dividing the total number of minutes of the year by 10 (because a block is mined every 10 mins) & then multiplying by 6.25 (because each block gives out 6.25 BTC as rewards)

2.4: Therefore, the number of bitcoins mined each year can be predicted, and the last BTC is expected to be mined around the year 2140.

Bitcoin tokenomics also include the design of transaction fees, which miners receive when a new block is validated.

2.5: In short, the tokenomics of Bitcoin is simple and ingenious. Everything is transparent and predictable. The incentives surrounding Bitcoin keep participants compensated to keep the network robust and contribute to its value as a cryptocurrency

3: Key elements of Tokenomics

As a catch-all term, “tokenomics” refers first and foremost to the structure of a cryptocurrency’s economy as designed by its creators

Some of the most important factors to consider when looking at a cryptocurrency’s tokenomics.

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3.1 Token supply:

Supply and demand are the primary factors impacting the price of any good or service. The same goes for crypto. There are several critical metrics measuring a token’s supply.

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3.1.1 The first is called maximum supply. It means that there is a maximum number of tokens coded to exist in the lifetime of this cryptocurrency. Bitcoin has a maximum supply of 21 million, Litecoin has a hard cap of 84 million coins, and BNB has a maximum supply of 200 mn

3.1.2 Some tokens don’t have a maximum supply. The Ethereum network’s supply of ETHER increases every year. Stablecoins like USDT, USD Coin (USDC), and Binance USD ( BUSD) have no maximum supply as these coins are issued based on the reserves backing the coins.

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4: Circulating Supply:

Refers to the number of tokens in circulation. Tokens can be minted and burned, or be locked up in other ways. This has an effect on the price of the token as well. Looking at token supply gives you good picture of how many tokens there will be ultimately

5: Token Utility:

Token utility refers to use cases designed for a token. Example, BNB’s utility includes powering the BNBChain, paying transaction fees and enjoying trading fee discounts on the BNB Chain, and serving as community utility token on the BNB Chain ecosystem

5.1 There are many other use cases for tokens. Governance tokens allow the holder to vote on changes to a token’s protocol. stablecoins are designed to be used as a currency. Security tokens, on the other hand, represent financial assets

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6: Token Distribution:

Large institutions and individual investors behave differently. Knowing what types of entities hold a token will give you insight into how they are likely to trade their tokens, which will in turn impact the token’s value.

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6.1 There are generally two ways to launch and distribute tokens: a fair launch and a pre-mining launch.

A fair launch is when there is no early access or private allocations before a token is minted and distributed to the public.

BTC and Dogecoin are examples

6.2 On the other hand, pre-mining allows a portion of the crypto to be minted and distributed to a select group before being offered to the public. Ethereum and BNB are two examples of this type of token distribution.

6.3 Generally, pay attention to how evenly a token is distributed

A few organizations holding outsized portion of token are typically considered riskier

A token held largely by patient investors & founding team means stakeholders' interests are better aligned for long-term

7: You should also look at a token’s lock-up and release schedule to see if a large number of tokens will be placed into circulation, which puts downward pressure on the token’s value

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8: Examining token burns

Many crypto projects regularly burn tokens, which means pulling tokens out of circulation permanently.

For example, BNB adopts coin-burning to remove coins from circulation & reduce total supply of its token. Hence BNB is deflationary @cz_binance

9: Incentive mechanisms

A token’s incentive mechanism is crucial. How a token incentivizes participants to ensure long-term sustainability is at the center of tokenomics. How Bitcoin designs its block subsidy and transaction fees is a perfect illustration of an elegant model.

10: What’s next for tokenomics?

Since the genesis block of the Bitcoin network was created in 2009, tokenomics has evolved significantly.

Developers have explored many different tokenomics models. There have been successes and failures

11: Tokenomics is a fundamental concept to understand if you want to get into crypto

Hope the 🧵 helped someone to understand the the term 'tokenomics'

To understand more about how to trade in crypto and finding the next 100xgem follow @Crypticc_Bull with the noti🔔 on

This post is based on this twitter thread.

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