December 16

What is Tokenomics, and why is it Important?

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The blockchain industry, with its new projects coming out daily, and is growing at an incredible pace. Since there are not any regulations, big risks are involved. Fortunately, some token features can mitigate these risks. One of them is tokenomics and its variables.

What is tokenomics?

Tokenomics is the science of the token economy. You can compare it to a monetary policy of a standard fiat-based economy. It includes token distribution rules and other relevant metrics. It's an important document and real guide for a wannabe crypto investor.

Important aspects of tokenomics

To avoid a loss via market manipulation, you should look at some basic facts. Transparent tokenomics model usually means trust and transparency.  Here are some concepts that will help you with any investment decision.

  • Transparent token distribution
  • Time lock
  • Diversified token distribution
  • Token variables

Transparent token distribution

Transparent token distribution means a straightforward way to distribute the tokens among the project team, marketing purposes, ecosystem or private investors, etc. There is no doubt that all tokens are distributed and visible on the blockchain public address, and there are no hidden addresses whatsoever. 

Time lock

Time lock is one of the more significant features for any token metrics. It is instrumental in preventing losses caused by price manipulation. When the team sell their tokens, it can dump the price, and that should be a red flag for many projects. That's why a progressive time lock for the team and private investors tokens has to be applied visible in the smart contract.

Diversified token distribution

Smart investors always manage their risk. A diversification is one way to do it. You can also apply it from a token distribution point of view. According to unofficial rules, not more than 50% of your portfolio should be assigned to one token purpose

Token variables

The most significant variables are the total supply, circulation supply, burning ratio, the velocity of the token, etc. Be aware that too big a supply like 1 billion tokens in circulation can cause price inflation. If there is no velocity or no transactions, the token does not have any real utility.

The higher usage the protocol sets between the network members, the higher the token circulation is. Therefore the velocity will be necessary for the future value.

We will share more info and the ins and outs of crypto investing and trading in our next blog.

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