Tokenomics in Crypto: What Is It and How Can It Be Applied?
Very few years have passed since the first practical application of unique blockchain technologies. However, this time was enough for the development of the cryptocurrency industry , there have been great technological and informational progress. As a result, exchanging BTC to XVG today has become much easier and safer than it was before. Despite the active development of the crypto industry, many terminological concepts are still in the process of clarification. In connection with the active form of the information, technological, and legal fields, a number of new definitions appear.
In 2017, the term tokenomics appeared in the crypto industry. It implies the rules of operation of the token within the ecosystem created by the crypto project. To understand what is tokenomics and how it can be applied, first of all, it is necessary to consider the concept of a token. Read the material below.
What is a Token?
A digital virtual unit, which has some value and utility, is commonly called a token. It is produced by a special issuer to simplify/cheapen the process of exchange in the issuer’s blockchain ecosystem. When token issuing takes place, each project can endow it with utility, while attaching to it many unique features that apply in the project’s ecosystem. Functions of the token can be very different, here are some examples:
- As a means of receiving a service;
- As a payment instrument;
- As a means of asset accounting;
- As a means of exchange or accumulation;
- As a means of generating income, etc.
Pay attention that a token may perform a variety of functions at the same time. Each unique project can generate its own token circulation model in the blockchain ecosystem. So, there is a great opportunity for tokenization of any crypto project.
What Problems Can Tokenomics Solve?
Today there are two types of tokenomics: macro tokenomics and micro tokenomics. Macro tokenomics includes the collective properties of a network. It allows you to study the relationship with the blockchain economy as a whole. This also includes interactions with third parties such as exchanges and management. Micro tokenomics is the individual properties of the network and the analysis of variables that lead to changes in the functions of various parts of the blockchain. Here are the main application possibilities of tokenomics:
- Purpose of the token. Tokenomics allows you to determine why an asset is needed. Thanks to tokenomics, it can also be established whether the token is just a way to speed up the funding process for the project or whether it has a long-term goal;
- Functions of the token. Tokenomics establishes whether a token is scalable and whether it can be traded on an exchange;
- Token value and stability. The cost is difficult to predict and often depends on external factors such as volatility driven by liquidity on exchanges. Projects can improve the stability of the token by guaranteeing enough coins to meet demand;
- Distribution of tokens. To distribute assets among users, several methods are usually used: the accrual of rewards, the initial placement of coins, airdrops, or lock drops. All important factors, including the volume and emission timing, are taken into account.
Therefore, tokenomics is the key to the fundamental analysis of cryptocurrencies. Now there are a lot of tokens in circulation, so it is quite difficult to find a single method for assessing their value. In addition, the blockchain industry is still in the stage of development. Therefore, we cannot rely on past experience and historical dynamics of digital assets. Many non-quantifiable factors make the assessment even more difficult. So, tokenomics greatly helps to understand the values of a particular project.
