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Add a dir for tokenomics studies
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Tokenomics/README.md
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Tokenomics/README.md
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## 📊 Tokenomics of DeFi Projects
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<br>
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#### Tokenomics studies the factors that drive the demand for tokens. It includes:
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* math
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* supply vs. demand
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* incentives
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* value accrual
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* human behavior & game theory
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<br>
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#### Questions to ask
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* How many tokens are in existence?
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* How many tokens will there be in total?
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* Who has the supply? WHEN can they sell?
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* How will the supply change over time?
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* What are their policies for changing?
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<br>
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#### Things to watch out
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* The tokens were inflationary without enough utility.
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* Concentration of tokens by VCs & whales led to retail getting dumped on.
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* Understanding the market cap would show that it's impossible.
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<br>
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#### Supply Metrics You Should Know
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* Supply: How many tokens exist NOW
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* Max supply: The most that can exist
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* Market Cap: Current Price * circulating supply
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* Fully Diluted MC: Price * max supply.
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<br>
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For example, it's not a good sign that a circulating supply was only at 40%. That means the supply will increase by 60%.
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More coins created will put pressure on the price.
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<br>
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Another example, Dogecoin is an inflationary token: its supply is increasing each year, and there's no CAP on the supply.
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This isn't good for Tokenomics because it's the opposite of Scarcity. Some coins can become deflationary when the supply DECREASES over time.
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<br>
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#### Why Ethereum is ultrasound money
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* The merge to proof of stake lowers the inflation supply of ETH
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* EIP-1559 takes a bit of the transaction fees and burns it
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<br>
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#### Allocation & Distribution
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How are the initial tokens distributed? There are roughly 2 ways:
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* Pre Mined:
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1. The team distributes tokens to itself.
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2. Distribution to insiders such as the team and venture capitalists
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In this case, VCs and Insiders could dump their tokens and cause a price crash.
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Vesting means when they're allowed to sell the tokens. You want to make sure that the early backers are INCENTIVIZED with the protocol long-term.
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* Fair Launch:
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100% fair. Everyone has equal access.
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<br>
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<img width="490" alt="Screen Shot 2022-05-31 at 4 10 16 PM" src="https://user-images.githubusercontent.com/1130416/171298450-9c18c98a-db92-41f7-baad-1e3a180fe924.png">
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<br>
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#### What Drives the Demand for Tokens?
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* Utility (gas, fun, adoption)
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* Value Accrual (xStaking, governance)
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* The Memes and Narratives
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