This is a guide to tokenomics within crypto. I’ve written it up to help me think clearly about what tokenomics is and what I need to include in my approach when analysing projects.

This article / approach is only valid for fungible tokens - not NFTs.

What to analyse

Use tools like CoinMarketCap / CoinGecko and the project docs to review:

  1. Type of token
    1. L1 - a crypto coin native to its own blockchain and used for the transaction within it e.g. ETH
    2. L2 - a token is a distributable token within another blockchain e.g. MKR, ERC20 tokens on ETH
    3. Security
    4. Utility
    5. Governance (is this a separate type?)
  2. Distribution
    1. Type of launch - fair or pre-mine?
    2. If it’s a pre-mine (most are):
      1. How have the tokens been allocated?
      2. Are there any large wallets/holders that could act as a whale and dump price?
      3. What is the unlock schedule?
    3. Either way, how are tokens distributed?
  3. Supply
    1. Circulating supply - how many are currently in circulation?
    2. Total supply - how many exist currently (subtract any burned or locked up tokens)?
    3. Max supply - is there a max supply and if so what is it?
    4. How will the circulating supply fluctuate due to unlock schedule? To include release of tokens by team, unlock/vest schedule, burning schedule?
    5. If there’s too many tokens being released at once or too frequently, the value of the token might go down.
  4. Market capitalisation (Market cap)
    1. Current market cap (circulating supply * token price)
    2. Fully Diluted Valuation (FDV)
    3. The higher a token’s market cap and lower its circulating supply, the more valuable it could be in the future.
  5. Token model
    1. What’s the consensus algorithm?
      1. PoW, PoS or other?
    2. Is the token inflationary or deflationary?
      1. Inflationary - no max supply. What is the inflation rate range?
      2. Deflationary - max supply or economically deflationary due to token burns
    3. If there are multiple tokens, e.g. MKR and DAI, what is the model for each?
    4. Is the token asset-backed e.g. OHM or MKR? If so what is the floor value?
    5. What are the tokenomics use cases?
      1. Staking
      2. Exchange of value
      3. Project contributions (community/user rewards)
      4. Other utility
      5. Governance
    6. How will value accrue?

References

  1. https://www.finextra.com/blogposting/20638/understanding-tokenomics-the-real-value-of-crypto
  2. https://medium.datadriveninvestor.com/how-to-value-crypto-understanding-tokenomics-df35bda712c4
  3. https://cobie.substack.com/p/on-the-meme-of-market-caps-and-unlocks
  4. https://101blockchains.com/tokenomics/