📊 tokenomics for defi projects
Tokenomics studies the factors that drive the demand for tokens. It includes:
- math
- supply vs. demand
- incentives
- value accrual
- human behavior & game theory
Questions to ask
- How many tokens are in existence?
- How many tokens will there be in total?
- Who has the supply? WHEN can they sell?
- How will the supply change over time?
- What are their policies for changing?
Things to watch out
- The tokens were inflationary without enough utility.
- Concentration of tokens by VCs & whales led to retail getting dumped on.
- Understanding the market cap would show that it's impossible.
Supply Metrics You Should Know
- Supply: How many tokens exist NOW
- Max supply: The most that can exist
- Market Cap: Current Price * circulating supply
- Fully Diluted MC: Price * max supply.
For example, it's not a good sign that a circulating supply was only at 40%. That means the supply will increase by 60%. More coins created will put pressure on the price.
Another example, Dogecoin is an inflationary token: its supply is increasing each year, and there's no CAP on the supply. This isn't good for Tokenomics because it's the opposite of Scarcity. Some coins can become deflationary when the supply DECREASES over time.
Why Ethereum is ultrasound money
- The merge to proof of stake lowers the inflation supply of ETH
- EIP-1559 takes a bit of the transaction fees and burns it
Allocation & Distribution
How are the initial tokens distributed? There are roughly 2 ways:
- Pre Mined:
- The team distributes tokens to itself.
- Distribution to insiders such as the team and venture capitalists
In this case, VCs and Insiders could dump their tokens and cause a price crash. 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.
- Fair Launch:
100% fair. Everyone has equal access.
What Drives the Demand for Tokens?
- Utility (gas, fun, adoption)
- Value Accrual (xStaking, governance)
- The Memes and Narratives
resources and tools
- cadCAD
- Token engineering commons
- Awesome cryptoeconomics
- Utility token price simulator
- TokenSPICE
- Tenderly