Understanding of tokenomics is the most important skill in crypto.
Initially, when you find a potential coin to invest in, for example on CMC, you see the following:
- Market cap (mc)
- Total supply
- Circulating supply
- Fully Diluted Value (FDV)
Basic supply metrics:
✧ Circulating Supply: tokens that are currently in circulation
✧ Total Supply: total tokens that can exist
✧ MC: total value in $ of circulating supply
✧ FDV: total value in $ of total supply
understanding these metrics allows you to assess the token's potential
✧ But to do this, you need to know more about them than just their labels
✧ You need to understand how each of them operates and how they can impact the price
Supply-There are two paths a token can take:
1. Inflationary token
✧ The token's supply can increase, and this is called emissions
Emission is not good cause it usually leads to a decrease in value
However, if the emission rate is slow and the total supply is still far away, it does not significantly impact the value
2. Deflationary token
✧ It can also happen that the token supply decreases over time
✧ This occurs when a project buys back tokens and burns them
✧ In theory, reducing the supply should increase the value, but this is only in theory.
Now let's discuss the main factor that determines the launch and life of a token: Allocation & Distribution.
There are 2 ways:
- Pre Mined (distribution between early investors, team, advisors, etc. )
- Fair Launch (everyone has equal position to buy)
Mostly Pre-mind used
Why it's important?
✧ Cause if 50% is allocated for investors and there is TGE 100%, investors can dump the token and u become exit liquidity
✧ That's why you need to understand what are:
- TGE allocation
- Vesting
- Cliff
There are often the following Distribution receivers:
- Private Sale (investors, KOLs, etc)
- Public sale (retail investors)
- Marketing
- Ecosystem (staking, rewards, etc)
- Airdrop
So we've discussed who receives the tokens, now let's talk about how they sell them.
The day of the token launch is called TGE
✧TGE allocation is the percentage of tokens allocated to all the aforementioned individuals (10-20%)
✧ Cliff is the period after TGE and before the next vesting
✧ Vesting is the gradual release of token percentages each month
Recently, projects have been adopting a method with a small % TGE (up to 20%), followed by several months of cliff and 12+ months of vesting
✧ This approach is better suited for long-term project success, so it's important to verify all these details before investing.
Now, the other side of the coin for the success of any token is demand
✧ This is what motivates people to buy that particular token
✧ For example, the $, despite significant inflation, people still buy it cause they need it to live
In general, 4 things drive demand for tokens:
• Store of value
• Community
• Utility
• Value Accrual
Now about each one separately 👇
Store of value
✧ The next demand factor is that crypto can serve as a store of value
✧ Many people buy crypto simply to store their money in it, such as in $BTC, which is often compared to gold
Community
✧ As this cycle has already shown us, a community can strongly drive demand
✧ Meme coins pumped solely because of community
✧ People buy what they think will make them money
Value Accrual - Incentivizing for Stakers
✧ People also want tokens to provide some value
✧ So here is Staking, where you lock your tokens to earn rewards at regular intervals
✧ This is also beneficial for everyone and carries a relatively low risk
Value Accrual - Incentivizing for Holders
✧ Another option is Holding
✧ So, projects often give rewards/airdrops, etc., to their holders, and this is often beneficial for everyone
✧ But there are even more ways to lower the selling pressure through holding:
Holding 1 VeTokens
✧ You can also receive VeTokens for holding tokens
✧ "Ve" stands for Vote Escrow, meaning by locking your tokens, you gain voting power
✧ The longer you hold, the more voting power you accumulate
Holding 2 Farm Boosting
✧ Holding can also boost your farming token percentage
✧ The more you hold, the higher your percentage will grow
Also, understand that no matter how high the demand may be, it's important to understand Who's Holding.
✧ Strong community or dumpers
✧ This is more challenging to figure out; you need to get involved in the project's community and analyze it.
Also, remember an important thing: despite poor tokenomics, a token can rise, and vice versa
✧ Always consider this possibility
Below, I've made a list of what you need to check before investing:
NO BLIND INVESTMENT:
- Total Supply and Circulating Supply
- Allocation and Distribution
- Vesting period/Unlocking dates
- % Emission
- Demand
✧ After such analysis, you'll be able to determine whether it's worth investing in the project or not.
