What is Tokenomics?

Intro

The latest statistics from CoinMarketCap show us that the crypto area counts more than 10 000 active cryptocurrencies and 300 million investors across the globe. It seems difficult for cryptocurrency users, especially for new ones,  to discern good crypto for investing. So the question that comes up is, what to focus on when choosing a cryptocurrency to invest in? Well, our crypto experts have an answer – it is tokenomics.

The crypto tokenomics plays one of the main role in crypto value. It provides an indication of whether you should consider investing in a particular crypto or not. This article, written by P2B experts, will help you to increase your understanding of what is tokenomics and why is it important for crypto trading.

What is tokenomics?

The tokenomics meaning is formed by combining the two words token and economics. So tokenomics is the science of the token economy that gives an understanding of cryptocurrency’s supply and demand characteristics. It could also be argued that tokenomics includes all the essential qualities of  crypto for attracting the investors. 

The tokenomics of the particular cryptocurrency is carried out through the project whitepaper. The document usually covers all points including a token’s objective, model, functionality, allocation and distribution policy, and other details. Due to crypto’s tokenomics you can not only see how cryptocurrency works within the broader ecosystem, but also take an insight into the profitability of one crypto asset over the other in the future.

Why is tokenomics important for crypto?

The importance of tokenomics for crypto projects has the same value as strong leverage monetary policy for fiat currencies. It means that solid development, management, and execution of crypto allow the project team to build an efficient economy for the crypto project. This reflects on the growth of the ecosystem and the crypto price.

Looking over the crypto tokenomics such as Dogecoin tokenomics, Shiba Inu tokenomics, or any other crypto, you can emphasize the crucial significance of tokenomics from the investor’s point of view. It is really a crucial factor to be taken into account as tokenomics has a great influence over the future price of cryptocurrency as well as whether the project is unable to achieve the goals mentioned in its roadmap.

Thus, we come to the conclusion that the project’s tokenomics is having a far greater influence on the project’s success or failure than the team’s expertise and dedication, its concept, or the number of investments.

Which factors are involved in tokenomics crypto?

The majority of factors that are included in the crypto’s tokenomics, you can find in the most-referenced price-tracking websites for crypto assets like CoinMarketCap or CoinGecko. Below we have collected a list of key metrics that each investor should take into account when trying to decide a token worth. 

1. Allocation and distribution 

Most cryptocurrencies are generated due to two basic ways: fair launch and pre-mining.

Fair launch means mining, earning, owning, and governing the cryptocurrency by the entire particular crypto community. The possibility for early access to the token or private allocations before it becomes public is absent. Everyone has equal access that is why it is called a fair launch.

Premining has a corresponding meaning. It is carried out when a number of the tokens are generated and distributed among insiders before it goes public. This community of insiders usually includes project developers, other team members, and investors.

Each of these ways are the place to be. Apparently, fair launch model facilitates more trust, but on the other hand the majority of crypto projects come with pre-mined tokens. 

Despite the fact that decentralization and transparency are two qualities that are highly valued in crypto, the main point is the extension of token distribution. So if the project is distributing their cryptocurrency to as many crypto enthusiasts as possible, you, as investor,  can assume the project is a legitimate one, and consider about tokens buying.

2. Supply of the crypto 

One of the main parts of tokenomics is token supply. Crypto has three types of supply: circulating supply, the total supply, and the max supply. 

The first one, the circulating supply of crypto is the number of tokens that have been issued so far and are currently in circulation. The total crypto supply is the number of tokens that exist at present, excluding any that might have gotten burned. And finally, the max supply of a token is the maximum number of crypto that can ever be generated. In some cases, the max supply of crypto is not determined. 

So, what influence does it have on the crypto value? The regular increase of circulating crypto supply can lead to increasing the value of token in the future. On the other hand, if there are too many tokens being released at once or too frequently, the value of the token might go down. You should pay attention to this pattern.

3. Market capitalization

What is the market capitalization, or in other words, – market cap? It is an important metric in the crypto area which reflects the relative size of a cryptocurrency. And what does it do? This measure gives some insights into the value of a token. As the market capitalization is a multiplication of the current crypto market price and the total number of this crypto in circulation, you can establish clear patterns and use them before crypto trading. For example, the higher crypto market capitalization and the lower its circulating supply, the more precious it will be in the future. 

4. Cryptocurrency model

Depending on the project’s business goal, and the unique features of its cryptocurrency, crypto can have one of the basic models: inflationary or deflationary.

The inflationary model means that a max supply of crypto is absent, and it is continued to be produced as time goes on. 

The deflationary model has the opposite operating principle. The max supply of such crypto is limited. 

Also, some crypto tokens can have a dual token model with two cryptos in one ecosystem. In this case, one token can be used for funding within the ecosystem and the other as a utility token. 

There is no right or wrong choice of a cryptocurrency with one or another crypto model. No one’s economic model is perfect. But above all, we recommend you to make the choice based on a particular project and its crypto incentives.

Why do you need to know about tokenomics?

It needs some time to start understanding tokenomics, but as a result, your crypto investments become more efficient. With tokenomics, you can emphasize the following information about the token and improve your trading skills :

• What can the token be used for?
• What is the type of crypto allocation and distribution? 
• Who owns the crypto? 
• How many tokens exist at the moment? 
• How many tokens will exist in the future and when will they be created? 
• Is there any information to suggest that a large number of crypto has been lost, burned, deleted, or are somehow unusable?
• and etc.

Tokenomic & Trading on P2B

In the majority of cases, crypto transactions on CEX don’t require an additional commission. CEX sends a token from one to another wallet inside the exchange, so the transfer is not reflected in Blockchain. Sometimes, it causes issues for projects as CEX is not able to support the project.

There are several options for how tokenomics works for different projects on the P2B exchange:

• Tokens are burned while sending a transaction from wallet to wallet/ exchange.
• Tokens are sent to the address. The list of addresses is determined in the project’s smart contract. 

If the tokenomics of a particular crypto requires an additional commission for a transaction, you will see a notification window on the trading page. Such notification includes the following message: “The selected pair has additional fees due to the project tokenomics”. After the dealing is completed, a crypto with the removal of commission fees will be credited to your trading account. 

Pay attention to the number of fees, their future distributions are determined by the project individually. 

Final thoughts

While tokenomics lacks a universal definition, this article gives you an idea of what meaning it has for crypto and what important parts of a token’s economy it includes. This is the reason why everyone within the cryptocurrency space should be aware.

So, when you choose the project for investments, you should take into account its tokenomics and assess prospects for it. In such a way, you can understand whether one token is more likely to have a great future than another and be sure that you make a good choice.