The advent of cryptocurrencies has introduced a new form of economy called Tokenomics. It is defined as the economy of tokens or cryptocurrencies.
It’s really quite a broad topic, below are some economic patterns, others are popping up in this new digital age of finance. As memenomics, the economics of meme-driven markets, apart from fundamental value, was propelled to Dogecoin into the stratosphere by WallStreetBets/Gamestop’s TikTok in a matter of days, Dogecoin became an asset completely separated from more traditional fundamentals. Ponzinomics is the economics of ponzi schemes and has dominated the ICO and DeFi space since 2017. The latter is the belief in the success of a non-existent company fostered by paying quick returns to early investors of money raised by later investors. investors is invested.
Cryptocurrencies can be designed to conform to a set of predetermined (or changing) rules that ultimately shape and define the coin’s value proposition. How a room is run is arguably one of the most important factors. Why ? After all, governance determines whether or not the rules of the chamber can be changed. The more decentralized the government, the less likely the rules of the game will change. In the case of Bitcoin, the rules are set in stone. To change Bitcoin’s rules, hundreds of thousands of participants would have to accept and embrace the change at the same time.
Factors Influencing Value Supply
Simply put, it all depends on supply and demand of the token. As with any free market asset, greater aggregate demand will naturally lead to a higher price. It is therefore one of the first things a wise investor looks at before deciding to invest his money in any project or business. The goal of any good token-based project is twofold. Firstly, to ensure that the token has a high value and gives investors a good return. Second, to ensure that these good returns are stable and sustainable over the years. Now, while these two goals may seem at odds with each other, strong token management and dynamic team response make it possible.
If a token is steadily generated over time and nothing to reduce the growing supply, it will depreciate in value over time. For example, if a token is worth $1 for a total supply of 100, it would be worth $0.10 if the supply increases to 1000, assuming demand stays the same. In order to reduce the supply, there must be instances where the token is burned. On the demand side, people selling their tokens will lower the price. Demand for a token can be driven by strong use cases or by people buying because they think 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 set the price. This is what happens when an entity has a monopoly on something.
Cryptocurrencies burning their tokens simply means that a certain number of tokens are permanently withdrawn from circulation. This reduces supply, which increases scarcity, which in theory increases demand in the market because people value cryptocurrencies that are rarer. It also encourages hoarding (HODLing) of 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 link between the use of the platform or service being created and the asset? If so, chances are a growing service will require purchases and usage that will eventually drive up the price. If not, what can the token be used for? How many coins or tokens are there currently? How many will there be in the future and when will they be made? Whose are the coins? Are there any that will be reserved for developers in the future? Is there information indicating that a large number of parts have been lost, burned, removed or are otherwise unusable?
These are all questions if you decide to invest in crypto.