the economy of a cryptocurrency token

The advent of cryptocurrencies has introduced a new kind of economy called Tokenomics. It is defined as the economy of tokens or cryptocurrencies.

It really is a pretty broad topic, below are some economic patterns, others are emerging in this new digital age of finance. As memenomics, the economy of meme-driven markets, separated from fundamental value, was driven by WallStreetBets / Gamestops TikTok to Dogecoin in the stratosphere in a matter of days, Dogecoin became an asset that was completely different from more traditional fundamentals. Ponzinomics is the economy of ponzi schemes and has dominated the ICO and DeFi area since 2017. The latter is the belief in the success of a non-existent company, promoted by paying quick returns to early investors from money invested by subsequent investors.

Cryptocurrencies can be designed to fit a set of predetermined (or changing) rules that ultimately shape and define the value proposition of the coin. How a room is managed is without a doubt one of the most important factors. Why ? This is because management decides whether the rules of the room can be changed or not. The more decentralized the management, the less likely it is that the rules of the game will change. In the case of Bitcoin, its rules are considered to be set in stone. Changing Bitcoin rules will require hundreds of thousands of participants to accept and embrace the change at the same time.

Factors affecting the value proposition

In short, it all depends on the supply and demand of the token. As with any free market asset, increased aggregate demand will naturally lead to a higher price. It is therefore one of the first things that any wise investor looks at before deciding to invest his money in a project or a business. The goal of any good token-based project is twofold. First, to ensure that the token has a high value and provides investors with good returns. Second, to ensure that these good returns are stable and sustainable over the years. Although it now appears that these two goals are at odds with each other, strong token management and a dynamic team response make it possible.

If a token is generated steadily over time with nothing to reduce its growing supply, it will devalue over time. For example, if a token is worth $ 1 for a total supply of 100, it would be worth $ 0.10 if supply increases to 1000, provided demand remains the same. In order to reduce the supply, there must be cases of use where the token will be burned. On the demand side, people selling their tokens will get the price down. The demand for a token can either be driven by strong use cases or by people buying because they believe the price of the token will increase in the future.

The entire supply and how a new supply is created are of course supply and demand factors that ultimately determine the price. If you can change the offer, you can control the price. This is what happens when an entity has a monopoly on something.

burning

Cryptocurrencies that burn their tokens simply mean that a certain number of tokens are permanently taken out of circulation. This reduces supply, which increases scarcity, which in theory increases market demand as people value cryptocurrencies that are rarer. In fact, it also encourages hoarding (HODLing) the perceived future value of the coin. In this way, it strengthens the monetary base of any cryptocurrency.

Factors to consider

Perhaps the most important thing is to understand how the digital currency will be used. Is there a clear connection between the use of the platform or service being created and the asset? If so, chances are a growing service will require buying and use that will ultimately drive up the price. If not, what can the token be used for? How many coins or tokens are there currently? How many will exist in the future and when will they be created? Who owns the coins? Are there any that will be devoted to developers in the future? Is there any information to suggest that a large number of parts have been lost, burned, removed or otherwise useless?

These are all questions if you decide to invest in crypto.

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