Which coin is rising, while my coin keeps going down
This is certainly a concern that is not unfamiliar to newbies when stepping into crypto
One of the important things when starting out is that we need to understand the tokenomics of the project
Tokenomics is the economic model of a crypto project, defining how tokens are created, distributed, and maintained in value
It's like the "rules of the game" that we analyze to see if the project is sustainable
5 Core Elements of Tokenomics
1/ Allocation & Distribution
Who receives tokens, and how are they brought to the market?
Fair Launch: Tokens are mined by the community, without favoring anyone
Example: Bitcoin
Pre-mine: Tokens allocated in advance to the team, investors to raise capital
Example: Uniswap ($UNI) distributed 60% to the community over 4 years
If the team holds too many tokens, they can dump, causing price to drop
Projects that are transparent and distribute gradually (3-5 years) are usually more trustworthy
2/ Supply
Supply determines the number of tokens that exist and how it changes
Circulating Supply: Tokens currently in circulation
Total Supply: All tokens, including locked ones
Maximum Supply: Maximum total tokens
Example: Bitcoin limits 21 million BTC
Low circulating supply but high valuation -> leads to selling pressure when tokens are unlocked
3/ Token Model
Inflationary: Unlimited supply, encourages participation but can decrease value
Example: Dogecoin
Deflationary: Limited supply, can burn tokens, increases long-term value
Example: BNB periodically burns tokens
Inflationary is suitable for short-term speculation
Deflationary is good for long-term investment
4/ Incentives
Projects need to create motivation for users to participate and hold tokens
Profit sharing: Receive rewards through airdrop, transaction fees
Example: Curve Finance shares fees with CRV holders
Staking: Lock tokens to receive rewards, support the network
Example: ADA
However, too many rewards cause inflation, too few fail to motivate users to stay with the project
5/ Consensus Mechanism
How blockchain networks operate and secure themselves
Proof-of-Work (PoW): Miners solve mathematical problems, energy-intensive
Example: Bitcoin
Proof-of-Stake (PoS): Token holders validate, energy-efficient, encourages long-term holding
Example: ETH
PoS advantage is being environmentally friendly, suitable for long-term projects