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🍿 tokenomics for defi projects
projects
supply
- Circulating supply: How many tokens are in existence (in the market)?
- Max supply: How many tokens will there be in total?
- Total suppply: all tokens already issued minus the ones that were burned/locked.
If the circulating supply is low while the total and max are high: red flag as the value of your coins will get diluted away (more coins created will put pressure on the price).
The monetary policy in crypto dictates whether a coin is inflationary or deflationary and by how much, as well as the overall consensus mechanism for the project.
liquidity and valuation
- Fully diluted valuation: How will the supply change over time?
- Market cap: Current Price * circulating supply
- Fully Dilute: Market cap: Price * max supply.
distribution
- Holders: Who has the supply? WHEN can they sell?
- DAOs/project research: What are their policies for changing?
A good distribution design is when no single person or group holds a large amount of the coin, instead, it’s distributed among many individuals.
- how are the initial tokens distributed? There are roughly 2 ways:
pre minted
- 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.
concerns
- 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.
what drives the demand
- Utility (gas, fun, adoption)
- Value Accrual (xStaking, governance)
- The Memes and Narratives