Tokenomics || What and How?

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I've been hearing a lot about tokenomics not knowing what it was at first. In fact, when I was the enomics attached, I was like, what is economics doing in crypto? What relation do they have? I later came to discover something distinctive which interests me up till now. From the word economics, management, value and supply and demand may come to our minds.

Tokenomics actually describes factors that create impacts on a token's value including its supply and demand, its burn schedules and creation. This particular topic is very essential for investors who wants to participate in a project on a particular token. It will actually help them make informed decisions after assessing the tokenomics or factors that impact the value of that project.

Tokenomics is an essential key component used in carrying out fundamental research on a Crypto project to know and evaluate the future prospect of that Crypto project asides knowing the founders, roadmap, community growth etc on their white paper.

Projects on blockchain design tokenomics rules on their tokens to either encourage or discourage a user's action. It's just similar to how money is printed by central banks and monetary policies are implemented to encourage or discourage lending, borrowing and even savings. These rules can be easily changed but unlike them, tokenomics rules is difficult to change, and is very transparent and predictable.

It's also implemented through codes. Let's take an example of bitcoin's tokenomics. Its tokenomics are very ingenious and simple. It's very transparent and predictable which defines it well. Its tokenomics also include the design of its transaction fees after new blocks are validated on a blockchain. The fee is designed to either increase or decrease as transaction and network congestion rise or drops.

This helps prevent spams transactions and also incentivize miners to keep the network robust and contribute to its value as well. There are some key element or words under tokenomics. These elements are listed and explained below.

As deliberated at the onset, tokenomics have factors that impacts a token's value or use. These factors are very important when considering or looking at the structure of a cryptocurrency's economy as designed by its creators. One of such major factor is the

• Token Supply: In economics, Supply and demand are essential terms used in impacting the prices of goods. Same with Crypto. There are certain metrics that measures a token's supply and one of such is called the maximum supply. This maximum supply means that there's a maximum number of tokens to exist in any crytocurrency.

If we take a look at bitcoin, it is coded to a maximum supply of 21 million coins which means that it has limits to its supply. Unlike other stable coins that has no limit or maximum supply, coins like BNB, litecoin etc has limitations. The second is circulating supply. This is the circulation of tokens in a blockchain which can be burned or minted to add value to the price of that coin.

Example is what we do here on steem. We burn steem so as to remove steems in circulation thereby, increasing the price of Steem to an instance. So looking at the token's supply of a crytocurrency will help one have this clear picture of how many tokens there will be Ultimately.

• Token Utility is the second factor to be considered. This actually refers to the use cases designed for a token. Taking a quick look at the use cases of BNB, paying transaction fees and enjoying discounts on trading and also powering the BNB chain are involved. Users can stake BNB knowing these use cases to earn additional income. Understanding the utility of a token will actually help one determine how a token's economy will evolve.

• Token distribution is the third factor to be considered. Knowing how tokens are distributed or which entities hold that particular token will give us insight on how they are likely to trade or distribute that token. There are two ways to distribute a token. One is the fair launch when there's no private allocation before that coin is distributed and minted to the public. Coins that exhibit this kind of distribution include doge coin and bitcoin.

The second is pre-mining which allows private allocation to certain group before being minted or distributed to the general public.

This should be highly considered including a token's lock-up and release schedule. Token burn can also play a fundamental tool in tokenomics. How? This would be discussed in my next post.

Disclaimer: Any financial and crypto market information provided in this post was written for informational purposes only and does not constitute 100% investment advice. It's just basic knowledge every crypto trader or investor should have.