Although good tokenomics cannot save unsound projects, even the most promising networks can fail due to poor token design.
Dramatic blowups like Terra LUNA and Celsius expose the dangers of financial fraud—algorithmically stable cryptocurrencies and disguised profit programs in the form of innovation. But there are still many other high-potential projects committing economic suicide through easily avoidable mistakes.
Blue-chip projects with real technical value and legitimate use cases, like Aptos, have seen billions of dollars in market cap evaporate overnight due to poorly managed token unlocks and poor communication. It is crucial for cryptocurrency founders to enhance their focus on token design so that major projects can build a solid economic foundation as robust as their technical foundations.
Serious errors in token design
The biggest tokenomics mistakes I see in solid projects are:
Large pricing gaps
Although projects often offer early investors tokens at lower prices than later rounds, founders should be cautious about allowing large price discrepancies between these early rounds and public buyers. This can be easier said than done as savvy investors demand lower prices to avoid the threat of investment rejection.
However, an investor with a lower entry price compared to later rounds essentially guarantees their profits even at lower prices than public buyers' cost basis. This means losses for buyers in later rounds can still lead to profits for the earliest token holders—creating an unfair imbalance in the project's token economy.
Poor vesting schedule
Too many projects turn public buyers into liquidity exits for early investors and insiders. Nothing destroys a community faster than witnessing early insiders sell off tokens while public buyers are left holding withering bags.
Unlock timing is critical. While long lock and vesting schedules may seem good for increasing value, they almost always guarantee predictable selling pressure when investors are forced to hold too long competing to sell off. Quick unlocks can help quickly explore price and expand the base of token holders, but they also allow whales to sell off, creating "red candles" and eroding public trust.
Founder over-selling
Sometimes the prospect of turning newly minted digital tokens into real value is too enticing for the founders who created them. I have seen projects transition from great ideas to publicly traded with a value of over a billion US dollars, creating millionaire founders in the process. Even the most disciplined are tempted to sell their stake and exchange project tokens for cash.
For example, Mantra suddenly lost 92% of its value in just 90 minutes. Despite the CEO's contrary statements, blockchain analysts quickly pointed out significant internal movements of at least $227 million to exchanges, indicating an internal sell-off.
High listing value
Founders are often tempted to list at higher valuations because they generate bigger headlines, attract attention, and create hype. Founders are not entirely to blame, as even Binance is known for listing at unusually high valuations, with projects like Hamster Kombat (HMSTR) listed at a market cap of over $700 million and Notcoin listed at an astounding $1 billion at launch.
But projects listed at inflated valuations create a lot of "air" beneath them, and when everyone has money, there is almost certainly a race to the bottom, with token holders quickly cashing out to get a better price than those beside them. High starting valuations also mean the prospects of public buyers earning multiples on their investment will be lower, reducing secondary market demand. When you have many holders selling and no one buying, the end result is a death spiral.
While projects like Hamster Kombat set records for engagement in the industry and were listed on top exchanges worldwide, its overly high value at listing caused a price drop of 87% to its lowest recorded level.
What really works in Tokenomics
BTC and ETH hold top market cap positions for good reason. In addition to launching early, they have demonstrated some core principles that distinguish sustainable token models from hollow speculative vehicles.
Real scarcity
The fixed supply of 21 million Bitcoin is not only strong because it is scarce but also powerful because the market firmly believes that this limit will not change.
Deep product integration
The fundamental question every project must answer honestly: Can your product function without a token? If so, there’s a good chance you’re imposing a token where it’s unnecessary.
Projects like Filecoin exemplify this principle very well—its tokens are essential for the network's storage market function, making it almost impossible to separate the product from its token. In contrast, projects that attach tokens as afterthoughts often see their tokens lose value over time.
Sales restrictions
Projects should structure pricing in each sale round with decreasing spreads and design lock schedules to prevent lower-priced buyers from "selling off" their tokens to participants in later rounds. Creating layered vesting schedules restricts early selling for lower entry buyers while allowing later round participants to reduce upfront risk will provide a reasonable balance between profits for early buyers and price protection for later buyers.
Using an audited compensation contract
Well-structured token economics go beyond what is written in a document. Projects should go a step further and ensure their tokens are held by an immutable smart contract, audited by a third party, ensuring transparency and compliance from all parties.
Realistic valuation and supply management
Lower initial pricing may seem like leaving money on the table, but it creates room for meaningful valuation. Projects launching at inflated valuations do not provide much profit for new participants, killing momentum and community growth.
Low total supply allows for better price control and market reaction. It makes the token more meaningful, making manipulation harder and price fluctuations more significant.
Token management operations
Good tokenomics is not set and forget—it requires ongoing management. Here are some best practices:
Strategic supply management: Only increase circulating supply in bull markets. This prevents additional token sell-offs in already weak markets.
Buyback program: Implement token buybacks when selling pressure is high to stabilize prices and signal the project's commitment to a high token valuation.
Controlled liquidation: Require major investors to use market makers when selling significant positions to prevent large price impacts from sudden sell-offs.
Build to last
The most successful projects approach tokenomics as an extension of product design rather than just a technical financial exercise.
Thoughtful tokenomics is a signal to the market about a thoughtful product and team. Your token is ultimately your best marketing tool—it rewards loyalty and financial alignment with users.