As cryptocurrencies have gotten more popular as investments, it has led to the discussion of "tokenomics," a term used to describe the economics of crypto projects.
While carrying on your research into a crypto project to invest, tokenomics should be a crucial part of your outlook on a project.
Therefore, we look at what tokenomics is in crypto and why it is crucial as one of the critical factors to consider while choosing a crypto project.
What is Crypto Tokenomics?
Crypto tokenomics, a combination of "token" and "economics," is a term for all the factors that go into the value of a cryptocurrency.
As you can imagine, this includes various factors, including the maximum token supply, how new tokens are added to or removed from circulation, incentives for token holders, and the project's utility.
The main things to look for in crypto tokenomics include:
Purpose: what does the token achieve?
Functionality: how does it achieve it?
Utilization: is it actively being used?
Distribution: how is the token distributed?
The Importance of Tokenomics
Understanding tokenomics can go a long way to helping you assess the merits of a given project. If crypto projects can successfully leverage tokenomics principles to grow a community, the tokens will have a good chance of success.
A firm grasp of token metrics is critical to long-term project success. But tokenomics is not just applicable to token issuers. However, it is also highly relevant to crypto traders. Tokenomics metrics provide critical indicators of success for a given project – crucial info for any trader.
What Entails in Tokenomics
Total token supply- This metric represents the total number of tokens token projects can issue. For example, Bitcoin has a maximum supply of 21 million coins. Litecoin has a hard cap of 84 million coins, and BNB has a maximum supply of 200 million.
Circulating supply- While total token supply indicates the total number of tokens that can be issued, circulating supply shows how many tokens have been issued to date and are currently available on the market. From an investing perspective, it is generally recommended to consider investing in projects with an ample circulating supply only in the early days of a project's launch.
Token Price- The token price is the amount in fiat (or BTC, ETH, or another currency) required to purchase one token. Identifying a token price that sets a project up for success is crucial for any crypto project. Simply put, this metric can be determined by taking the total allocation of tokens for a given sale and dividing it by the theoretical hard cap for the project.
Token Market Cap- The market cap of a cryptocurrency is the price per token multiplied by the number of tokens in circulation (circulating supply, not total supply).
Compatibilities Supported- Compatibility can indicate the likelihood of success for some token projects, as it represents the degree to which a given platform is compatible with industry standards.
Bottomline
Cryptocurrencies are high-risk, but some are much more likely to find long-term success than others. Tokenomics can help you pick out the potential winners and avoid the ones that are all styles and have no substance.
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