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Tokenomics

Understanding Tokenomics- Short Guide for Crypto InvestmentsEveryone dreams of finding that 100x crypto gem, but if you want to have a fighting chance beyond just buying random coins and praying that one hits, there’s one thing you need to do: master tokenomics. Tokenomics is the key to a crypto project’s price performance, and nearly every 100x crypto gem in history has had great tokenomics. This guide will teach you tokenomics from top to bottom, making you a savvier investor. What is Tokenomics? Tokenomics refers to the economic structure and financial model behind a cryptocurrency. It encompasses everything from supply and demand dynamics to token distribution and utility. Understanding these factors can give you a significant edge in identifying potential high-reward investments. Supply and Demand At its core, tokenomics boils down to two things: supply and demand. These two elements have a massive impact on a token's price. Even if a project has the best tech and marketing, it may not translate into great price performance unless it also has solid tokenomics. Supply-Side Tokenomics Supply-side tokenomics involves factors that control a cryptocurrency's supply. There are three types of supplies, but for the purposes of finding 100x gems, we focus on two: maximum supply and circulating supply. Maximum Supply: This is the maximum number of coins that can ever exist for a particular project. For example, Bitcoin has a maximum supply of 21 million, which means there will never be more than 21 million Bitcoins in existence. Circulating Supply: This is the amount of coins that are circulating in the open markets and are readily tradable. Websites like CoinMarketCap or CoinGecko can provide these values for most crypto projects. Example: Bitcoin has a maximum supply of 21 million, making it a highly sought-after asset, especially in countries with high inflation. In contrast, Solana has a circulating supply of over 400 million but a maximum supply of infinity due to inflation, where the supply increases forever as the network creates more coins to reward miners or validators. Inflation and Deflation Inflation: Some projects have constant token inflation, where the supply goes up forever. While we generally prefer not to have inflation in tokenomics, some inflationary coins perform well as long as the inflation is reasonable. To determine if inflation is reasonable, convert the yearly inflation percentage to a daily dollar amount and compare it to market demand. Deflation: Some projects have deflationary mechanisms where tokens are removed from circulation through methods like token burns. For example, Ethereum burns a part of the gas fee with every transaction, potentially making it net deflationary. Rule of Thumb: Prefer projects with deflationary tokenomics or a maximum supply. Some inflation is okay if it’s reasonable and supported by market demand. Market Cap Market cap is another critical factor, defined as circulating supply multiplied by price. To find coins with 10x or even 100x potential, look for ones with lower market caps. For instance, a cryptocurrency with a market cap under $100 million, or even under $50 or $10 million, offers more upside potential but also carries more risk. Example: Binance Coin (BNB) has a market cap of around $84 billion 579 USD at the time of writing). For a 10x gain, it would need to reach a $870 billion market cap, which is highly unlikely anytime soon. Hence, smaller projects with lower market caps are preferable. Unit Bias The price of the token can affect its performance due to unit bias, where investors prefer to own a large number of tokens rather than a fraction of a more expensive one. This psychological phenomenon makes smaller unit prices preferable for 100x gems, assuming all else is equal. Fully Diluted Value (FDV) FDV is calculated as maximum supply times price. Be cautious of projects with a large difference between their market cap and FDV, as it indicates potential future dilution. A good rule of thumb is to look for an FDV of less than 10x the current market cap. Trading Volume High trading volume relative to market cap ensures that the market cap number is reliable. A volume-to-market-cap ratio above 0,001 is decent. Initial and Current Distribution Initial Distribution: Check how widely the tokens were initially distributed. Avoid projects where a significant percentage of tokens are held by founders or venture capitalists. Current Distribution: Use tools like Etherscan to analyze the current distribution of tokens. Look for a large number of unique holders and a low percentage held by the top 100 holders. Vesting Schedule: Analyze the vesting schedule to understand when team or investor tokens will be unlocked, as these can impact the token's price. Demand-Side Tokenomics Demand-side tokenomics refers to factors that drive demand for a token, such as its utility and financial incentives. Token Utility The primary driver of demand is a token’s utility. Strong utilities include: Paying for gas fees on a network Holding to access a protocol Getting discounts on trading fees Governance tokens generally lack strong utility unless they are actively used and valued by the community. Financial Incentives Staking rewards and profit-sharing models, like those offered by GMX, incentivize holding tokens long-term. Sustainable financial incentives drive demand. Growth and Marketing Allocation Allocations for growth initiatives, such as influencer marketing, community rewards, or airdrops, help generate demand indirectly. Look for projects with healthy allocations for growth and marketing. Conclusion Tokenomics is the most crucial factor in analyzing and finding potential 100x crypto gems. However, other aspects like the underlying technology, marketing, and community also play significant roles. Combining a thorough understanding of tokenomics with broader fundamental analysis will enhance your investment decisions.
BITSTAMP:BTCUSDEducation
by Mihai_Iacob
Decoding DeFi MetricsIn Decentralized Finance (DeFi), deciphering the wealth of new projects can be akin to navigating uncharted waters. However, amidst the chaos, fundamental analysis stands as a beacon, guiding investors and traders towards discerning the true value of DeFi assets. 1. Total Value Locked (TVL): TVL, the sum of funds nestled within a DeFi protocol, provides a vital glimpse into market interest. Whether measured in ETH or USD, it illuminates a protocol's market saturation and investor confidence. 2. Price-to-Sales Ratio (P/S Ratio): In DeFi, just like traditional businesses, evaluating a protocol's value against its revenue stream offers a unique perspective. A lower P/S ratio suggests undervaluation, indicating a potential investment opportunity. 3. Token Supply on Exchanges: Monitoring tokens on centralized exchanges unveils market dynamics. While a surplus may hint at sell-offs, complexities arise due to collateralized holdings, necessitating nuanced analysis. 4. Token Balance Changes on Exchanges: Sudden shifts in token balances on exchanges signal imminent volatility. Large withdrawals hint at strategic accumulation, underscoring the importance of tracking market movements. 5. Unique Address Count: More addresses usually imply widespread adoption. But beware! This metric can be deceptive. Cross-reference with other data for a clearer picture. 6. Non-Speculative Usage: A token's utility is paramount. Assess its purpose beyond speculation. Transactions occurring outside exchanges signify genuine use, a testament to its value. 7. Inflation Rate: While scarcity is a virtue, a token's inflation rate demands attention. Striking a balance between supply growth and value preservation is crucial, emphasizing the need for a holistic evaluation approach. In the intricate DeFi landscape, these metrics serve as the foundations of strategic decision-making. Each data point unravels a layer of complexity, empowering investors to make astute choices. As you delve into the world of decentralized finance, armed with these insights thrive in the boundless universe of DeFi possibilities! 🚀💡
Education
by Vestinda
1
How Governance Affects a Cryptocurrency's Coin Supply and PriceAs of last year, the top 3 most well-known coins - Bitcoin, Ethereum, Dogecoin - have all become "predictable" in terms of its coin supply. BTC has always had a fixed supply cap, ETH has become aggressively deflationary after its EIP-1559 upgrade started "burning" its supply, and Dogecoin is technically "disinflationary" since the rate at which the protocol issues its coins is set to slow down gradually over time. (People have estimated ~5% going downwards to 1% or less over the course of many years.) What all 3 coins have in common: 1) the supply curves for these coins are fixed and predictable 2) political leverage correlates directly with the ownership of money itself 3) the economic trajectories of each coin are basically unchangeable without some sort of centralized control Bitcoin and Dogecoin's protocol decisions are handled by the mining community (they decide which blocks to continue mining, in case there is a disagreement), and now that Ethereum has moved over to proof-of-stake, most of its major decisions will be decided by the core team itself. With proof-of-work, hash power is political leverage, with proof-of-stake, the coins itself does the same. While maxis focus on the differences between the two, at the end of the day, leverage over the system is measured in terms of how much resources you're willing to spend on your particular "vote" - it just depends on which you prefer - hash-power, or money-power. To be fair, this is how most coins operate right now since it is currently not possible to reliably do a "one person one vote" model (as is typically done in developed democracies) since identifying an anonymous wallet as a "person" is extremely difficult. So as a lesser evil, we use money-invested (aka your "stake") as means of measuring how much influence one should have on an ecosystem as a whole. (In this regard, most cryptocurrencies are similar to corporate shareholder models.) Until we have a better way of identifying people online as being "real", we're likely to be stuck with this model for a while, but not all coin systems are created equal - some will probably have better long-term viability than others. And a lot of that will be determined by how each coin handles its governance procedures. Proof-of-work systems right now have no means of reliably doing voting/governance on-chain - as a result, most coins opt to do their voting through third-party systems or platforms. While this can sometimes work, there is no "receipt" of whether the tally was legitimate or not - you just have to trust that the people conducting the polls were doing it in good faith. BTC/DOGE has never had on-chain governance and likely never will, while ETH currently possesses the potential to do, but seems unlikely now that it has also become deflationary. The "fixed supply" argument is similar to the "buy gold" argument in that there is an inherent distrust of supply curves that are "flexible" - the idea that when there is less of something it's going to be worth more is an intuitive argument that makes sense to a lot of people, at least on the surface. But ideally, you want the price of a coin to go up because there's more demand for it, rather than inflating it artificially by burning your supply - the less there is of something, the more out of reach it becomes for newcomers and people will less money, after all. So when a project puts "fixed supply" as part of its core value proposition, it's basically prioritizing the short-term appeasement of existing holders at the expense of future growth. We see a similar type of scarcity mindset (the "I got mine" syndrome) in assets like real-estate and gold as well, which are also both about to face corrections of their own. An asset starts to "bubble" when prices increase but quality goes down - then "pops" when the demand for it bottoms out as people realize that it's not worth it. Ideally, you want the economy to be flexible enough to handle swings in demand/usage, while keeping incentives aligned between all parties (investors, validators, users) at all times. It requires a very careful balancing act that exists somewhere in between fixed and infinite supply - and even better if these decisions are made through consensus mechanism rather than a unilateral decision made behind closed doors. (Tezos' self-amending protocol, combined with its on-chain governance system stands out as unique in this regard.) -- So what to do if you're an existing HODLer? Well, short to medium term, coins like Bitcoin, Ethereum, and Dogecoin will probably maintain their price as long as people come see it as a viable alternative to traditional assets as we get further into the recession -- that's the big bet that many are taking right now. But it does come with the understanding that it's probably only likely to happen once or twice more before the market saturates completely and hits its peak. Here crypto is at a disadvantage compared to assets like real-estate or tangible goods, since there's nothing forcing people to use BTC/ETH in particular - there are many other options in the market, after all. For more discussions about coin supply issues, here: www.reddit.com
COINBASE:XTZUSDEducation
by RyanTanaka
📌What Is The TOKENOMIC💸❗❓ (Part III) 🔰Today in continuation of previous parts , In this post, I'm gonna share five Metrics of tokenomics aspects that are essential in understanding how much a crypto project can be valuable for an investing purpose .. So lets get started; ♻️ #1 — Supply and MarketCap Think about dollar fiat currency. You may wonder how many dollars — in total — are in circulation now? How many more can be printed in the future? Are there any dollars printed but not in circulation? The same concerns exist in cryptocurrencies. and about 🔸Circulating Supply: the amount of coins (tokens) circulating in the market and owned by people. 🔸Max Supply: the maximum possible number of coins (tokens) that can ever exist. 🔸Total Supply: the total amount of coins (tokens) issued until now and not necessarily in circulation. This includes the burned coins or the locked-up coins ready to be unlocked in the future. The following image shows the supply numbers for three famous crypto projects — Bitcoin, Ethereum, and Cardano. 🔹Market Cap: Market capitalization refers to the market value of a company's equity or a cryptocurency in this case. It is a simple but important measure that is calculated by multiplying a crypto circulating supply by its price per unit. For example, DOGECOIN priced at $0.1386 per unit and with 132.67B DOGE(sirculating supply) outstanding would have a market capitalization of $18,386,887,172 . 🔹Fully Diluted Market Cap: means crypto at today's token price if the total supply of cryptocurrency were in circulation. To determine the fully diluted market cap, multiply the token's current value by the total supply of cryptocurrency Now you may ask why checking and analyzing these numbers are important? These numbers are perfect indicators for analyzing supply and demand. Here are some examples: I mentioned this idea before as a fundamental factor of economy and now you can scale for tokenomics because it also has a very close correlation with “Supply” metrics. Thus, to better understand supply and demand, please check it out ! ♻️#2 — Burning Have you ever destroyed your fiat money? Remember the money went to the washing machine, and it never came out of it? You got drunk and burned some dollars on a VIP table in a disco. You emptied your pocket into the recycle bin, and the poor money ended up in the trash. It happens to all of us. And for the record, this is something our beloved governments are also doing — time to time. You can expect the same type of destiny for cryptocurrencies. Here, we are talking about token (coin) burning. The crypto world does not have any washing machines, VIP tables of discos, trash bins, or governments. Yet, the burning process happens in this industry for a whole set of different purposes. 🔹to decrease coins in the circulation 🔹to adjust supply and demand 🔹to make the asset less inflationary The general idea behind the burning process is to make the coin more demanding and less inflationary. There is no unique approach that all projects follow to burn their tokens. Some burn on scheduled intervals. Some other burn part of the transaction fees. Surprisingly enough, some projects burn tokens randomly and without notice. It is also worth mentioning that some experts also count lost coins (forgotten passwords, coins sent to wrong addresses, dead owners, etc.) as burnt. ♻️#3 — Monetary Policy Traditionally speaking, the concept of a monetary policy doesn’t come from crypto. Instead, it refers to a central bank’s macroeconomic measures to regulate a nation’s money supply and ensure sustainable economic growth. But what does monetary policy have to do with tokenomics? As part of a project’s tokenomics, monetary policy deals with inflation and deflation of its token supply. A healthy monetary policy implies that a project has a token issuance mechanism that incentivizes network participants to continue to behave in the best possible way. Additionally, it attracts new users to join the network and helps the token gain a higher valuation. These are some of the questions you can ask about a project monetary policy to draw conclusions about its future inflation or deflation: 🔻• How fast are the tokens released in circulation? 🔻• Does the release rate change over time? 🔻• Are there deflationary pressures, such as token-burning? 🔻• Are there significant changes in technology that can affect the project’s token supply? For example, Ethereum plans to move from proof-of-work (PoW) to proof-of-stake (PoS). In the same way that central banks strive to keep inflation at an optimal level, crypto projects focus on a token supply that best suits their strategy. There is no ‘one size fits all’ monetary policy, as the goals of crypto projects differ significantly. For example, some projects may opt for a deflationary token model as it can help grow the value of each token (the less tokens there are, the more valuable each token becomes). In other cases, an inflationary model may be more suitable as it can incentivize holders to stake their tokens, which will also keep the network secure and decentralized. Some projects offer incredibly high APYs of hundreds or even thousands of percent to incentivize people to remain within their ecosystems and bring forward unique use cases. The primary source of info for checking monetary policy is the Consensus mechanisms of the projects. This is something related to the source code and the infrastructure of the project under review. In simple words, a consensus mechanism refers to any number of methodologies used to achieve agreement, trust, and security across a decentralized computer network⁶. Here are some examples: ⚪-Proof of Work (PoW): A consensus mechanism in which each block is ‘mined’ by a group of individuals or nodes on the network⁷. ⚪-Proof of Stake (PoS): A consensus mechanism in which an individual or “validator” validates transactions or blocks⁷. ⚪-Proof of Authority (PoA/ ⚪- Proof of Burn (PoB)/⚪ -Proof of Capacity (PoC) /⚪ -Proof-of-Developer (PoD) /⚪- Proof-of-Donation /⚪- Proof of Elapsed Time /⚪-Proof-of-Liquidity /⚪-Proof-of-Replication /⚪-Proof-of-Spacetime Yes, I know! It is a lot to grasp. And every single project uses its version of the consensus mechanism. Yet, reviewing this data can give you valuable info about how coins are extracted, the inflation and deflation rates of the coins, and the rates the new coins will be introduced into the market. ♻️#4 — Token Distribution This is where things are getting more interesting. We all know or have heard about the stories of riches getting richer. We understand how the 80–20 rule works in traditional finance. 20% of the whole population owns 80% of the wealth or so. We all know how unfair can wealth distribution be — especially in less developed countries. We do not want to see those things in the crypto world. We want to invest in assets that we believe have a fair distribution of their tokens. We hate whales, or big players own the majority of the tokens. We scream and demand equality. Right? “Token Distribution” is absolutely an essential factor you need to check when investigating about tokenomics of a project. More specifically, you have to find out: How initially were tokens distributed (pre-mining, ICOs, etc.)? What percentage of the tokens are owned by owners, funders, developers, or partners of the projects? What is the maximum percentage public investors like you and me can own? Are there any locked-up tokens reserved for future distribution? If yes, what are the plans for making that happen? Are there some big wallets holding the majority of the tokens? And at what percentages? Is it possible that at some point, a big wallet sells its tokens and manipulates the market? These are just some of the questions you have to ask when you evaluate the token distribution. Answers to these questions (and similar ones) give you insightful ideas about either you have to invest in a specific project or not? ♻️#5 — Earnings💲 In blockchain-based models, sharing benefits or profits with stakeholders of the projects is a possibility. This means earning some passive income — on top of your main holdings — while you are contributing as a user in the network. There are several reasons to distribute these rewards between users: to incentivize the miners (in PoW consensus models) to secure the network (in PoS or similar consensus models) to confront inflation For example, these are three famous ways for earning rewards: ☑️Mining: is the process of gaining cryptocurrencies by solving complex mathematical problems using the processing powers of miners' computers. ☑️Staking: is the process of gaining cryptocurrencies by setting aside a certain amount of your tokens. By staking, you become a validator of the transactions in the network and as an incentive, you get some rewards back. ☑️Running Masternodes: is the process of running a cryptocurrency full node or computer wallet in charge of maintaining a real-time record of the blockchain activities. Masternodes are complicated to run and on top of that, they have an important role in the blockchains. Therefore, as an incentive, they receive rewards or interests. Sources:medium This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate
COINBASE:ETHUSDEducation
by PRO_SMART_Trader