A portmanteau of “token” and “economics,” tokenomics are key elements to any research and investment decision on a cryptocurrency project. A project’s tokenomics are central to evaluating the future viability of a cryptocurrency or token and should be designed to ensure long-term sustainable development.
Blockchain projects typically design their tokenomics to incentivize behavior that is in the best interest for the project and its community. Similar to how a central bank will implement monetary policies to encourage or discourage spending, lending, saving, and the movement of money, tokenomics are designed by a project to encourage or discourage a various token holder behaviors. While central bank policies are more opaque and can change with the wishes of central bankers, tokenomics are implemented through code and transparent and difficult, if not impossible, to change.
Well-designed tokenomics will provide incentives for investors to buy and hold the tokens over the long haul. Combined with a well-built platform, carefully crafted tokenomics will translate to higher demand for the token as investors flock to the project which will, in turn, boost the token’s price. On the other hand, terribly designed tokenomics will serve to scare away potential investors which may result in a project that is dead on arrival.
No two sets of tokenomics are exactly the same. There are many variables each and every project must consider when designing tokenomics that are right for their platform. Investors, too, must consider all possible scenarios and each and every element of a project’s tokenomics before making the decision to invest in the cryptocurrency or token.
While no two tokenomics are created equally, most tokenomics share similar elements. Let’s have a look at some of these elements and what they mean.
