Tokenomics 1: What is Tokenomics?

The acronym ‘DYOR’ (Do Your Own Research) is used a lot in the crypto space, but how do you actually do your own research? Admittedly, it’s not simple and learning to DYOR takes a lot of time, practice and commitment. But if you’re ready to learn, this is a good place to start. 

In this series, we’ll dive into the realm of Tokenomics.  

Put simply, tokenomics, or ‘token economics’, is the basics of evaluating a crypto (the token itself and the economics around it, not the protocol). It covers everything about how tokens work, including their mechanics, distribution, the factors that influence long-term value (such as supply and demand), and much more.

But first, what are ‘tokens’? 

In the crypto space, the word ‘token’ is used to describe digital assets that operate on another cryptocurrency’s blockchain (which is the case with many DeFi tokens).

In simple terms, a token belongs to applications built on top of blockchains like the Bitcoin or Ethereum blockchain, whereas a cryptocurrency belongs to the blockchain itself, e.g. BTC and ETH. 

Why are Tokenomics important?

When looking at Tokenomics, we’re looking to determine what makes a crypto valuable. We aren’t considering the protocol a crypto belongs to, but rather the token in isolation.

What does the token do within the ecosystem? How is it designed to act with supply and demand dynamics? Is it inflationary or deflationary? Does it have staking? etc.

Tokenomics are extremely helpful in determining how valuable an asset is and how valuable it will be in the future. If you’re looking at investing in a crypto asset, understanding its tokenomics is absolutely key to making a good decision. 

In this series, we’ll look at some of the tokenomic factors you need to know about, including supply, allocation/distribution, inflation, and utility. 

We’ll start by looking at supply in the next guide.

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.