Token economics sounds pretty intimidating. I remember when I first read the project white paper, I skipped this part directly. After all, I had never studied economics. 🤣

In fact, token economics mainly talks about two things. One is the information about the number of tokens, such as the total amount, circulation amount, unlocked amount, etc. The other is the role of tokens in a project or ecosystem, which is often called empowerment. For example, $ETH is used to pay for Gas.

Next, follow my thoughts on token economics!

➤ About the number of tokens:

The basic information of a token includes at least a few points: the total supply of tokens, the initial circulation of tokens, and the distribution of tokens (project owners/early investors/community airdrops). From these, we can deduce some indicators of whether it is worth buying:

  1. The initial circulation ratio combined with the token price can be used to calculate the circulating market value. If the market value is lower than that of similar projects and is far from the unlocking period, then in theory it has short-term investment value.

  2. The situation of full circulation requires careful analysis of token distribution and project reputation, and attention should be paid to insider trading and market sentiment.

  3. The community airdrop volume in the token distribution is large and it has been airdropped before the opening, so the selling pressure at the opening will be relatively large, which is not suitable for the first charge.

  4. Others are that early investors frequently unlock huge amounts of tokens, so it may be necessary to wait until the project circulates to a certain amount before considering investing.

  5. In some token economics, the investment price of early investors will be disclosed, which is also something to be concerned about, after all, no one wants to take over.

  6. In terms of the total supply of tokens, some projects will design a maximum total supply and an initial total supply. In this case, there is a high probability that there will be inflation for a period of time, which depends on the design of the tokens and the operation of the project. In layman's terms, we come to the cryptocurrency circle to escape from printing money.

➤ About token empowerment:

When it comes to token empowerment, specific analysis is required based on the specific situation. The examples below can be used as a reference.

For example, the token economics of $ARB describes the total amount and initial distribution of tokens, which also includes the token unlocking methods of the team and investors. I don’t know how many Holders are suffering from the unlocking and selling. In addition, there is almost no empowerment except voting governance, and the rewards of voting governance are very small, so there is no reason for everyone to hold it. Another positive example of similar token economics design, $ATOM, can get a lot of airdrops in voting governance, and can get good returns without the token rising.

For example, the token economics of $CRV also involves voting governance, but there is a very clever design in the voting, where token holders can vote to increase the staking income of designated tokens. This vote allows the token holders to switch from ordinary users to project parties, realizing dual holding from ToC to ToB, and also makes other protocols willing to increase CRV staking or liquidity pools to obtain more voting rights. It is a classic case of internal circulation to external circulation, and is a reference for many DeFi projects.

A good token economics design should have both internal and external designs, just like the often heard "economic internal circulation" and "economic globalization". If there is only an internal circulation, it is likely that only PVP can be done on the field, while an external circulation will attract more external capital inflows in the design, so that investors can enjoy the dividends of development. MEME is a special case. Most MEMEs do not need token economics and are mainly driven by emotions.

➤ Final Thoughts

Generally speaking, in the empowerment design, it is best for the project party to make money. If he cannot make money, then we investors have to pay the project team a salary.

Regarding whether the project is profitable, you can check out this short tweet of mine:

https://www.binance.com/zh-CN/square/post/9898254850457

This article is part of the #哈皮杂谈 series. If you think the content is good, why not follow @BitHappy and give us a triple like to support us?