Something you should know about tokenomics（ evaluating economic analyzing）
When evaluating token economics you should take these factors into consideration.
1. utility
2. Supply (allocation, unlock schedule, etc.)
3. Demand-driven (growth-driven, holder incentives, adoption)
4. Other token dynamics (staking, burning, locking, taxation)
5. Value-added mechanism
6. Reason for existence
0x01 Utility
• What is the token used for (other than speculation)?
• Will the utility grows with time/adoption?
- Is the use case for buying/holding tokens compelling enough?
Utility example：
- $CRV is used to guide the governance of emissions
- $LUNA is used to mint $UST
- $PTP for APR boost
0x02 Supply
- How many tokens do you have?
- How much is in circulation?
- How are the tokens distributed?
- What is the unlocking schedule for the remaining supply?
- How much inflation/deflation is there each year?
Supply is a very important piece of the token economics puzzle. Allocating a large number of tokens to an internal team is vulnerable to attacks by a small number of participants with very few tokens. Accelerating the unlocking plan will increase the selling pressure of whales on the market.
Tokens like ETH have both inflation (issue) and deflation (burn), which determines the total increase in the supply of ETH each day.
Example:
Currently, about $14,000 of new ETH is minted and about $4,000 of ETH is burned every day.
That is, the net ETH issuance is about $10,000 per day.
There is also a deflationary token that has a burn mechanism token (eg LUNA, ETH) that grows with usage, which is a big plus. For example, in the past 6 months, the total supply of LUNA has decreased from 996 million to 763 million.
For inflationary tokens — you will find it difficult for them to sustain prices skyrocket. Staking mining coins is a good example.
0x03 Demand-driven factor
What would lead to an increase in token demand (other than speculation)?
Do people have an incentive to buy/hold/stake/lock tokens?
Does the platform have a competitive advantage to make it popular quickly?
Example:
•exggrating the project launches may be (temporary) demand-driven for launchpad tokens, which may reward users for holding longer.
• CRV holders are vying for the governance of an important part of DeFi infrastructure.
• Lock HND to increase APR rewards
eg:
- NEAR / FTM / AVAX in terms of ecosystem projects, TVL and price, with incentive funds to attract developers to their ecosystem.
- DOGE / SHIB
Governance can sometimes be a demand driver, but often it is not. Does the community have any real motivation to vote?
In the case of CRV, the incentive is that voters take bribes. But in most cases, governance incentives are not a demand driver.
0x04 Token (locking, staking, taxation, burning, etc.)
- SOLID and CRV are staked for voting rights/bribery.
- FaaS coins are taxed on purchases and/or sales that fund the treasury
- $LUNA is burned to mint $UST
0x05 Reason for existence
we need to understand the OG “tokens” that drive economic wealth across the global market: equity and debt. Equity is ownership of an asset and debt is the amount owed in relation to that asset.
- Equity represents ownership of a company. If it’s sold, you’ll be rewarded handsomely. If it does issue a dividend, you’ll be rewarded handsomely too. Don’t like the board or the CEO? You can vote with other owners to “knock out” them.
- In the case of a debt relationship, if you are a lender, you want to get the loan repaid + interest.
Why does this protocol need a token? Is it an important input element? Does it provide returns for holders? Is there a corresponding farming farm and destruction mechanism? Will the project withdraw from liquidity privately? How does the token fit into the ecosystem?
0x06 Value-added mechanism
How does a token generate “value”? Meaning when the protocol generates revenue, how does the token holder get the revenue? How do various interactions in the protocol affect the price of the token (buy/sell/mint/burn)?
Here’s a simple example from a derivatives exchange
People make transactions on their platform, and half of the transaction fees go into a pool, which is then paid to stakers.
