Skip to main content

Tokenomics

Tokenomics is the economic framework that governs how cryptocurrencies function and evolve within their blockchain ecosystems and encompasses the economic model and principles that determine the token's value, utility, and longevity.

Schema​

Analysis Framework​

High level understanding tokenomics

  • Value Capture
  • Demand Drivers
  • Business Model

Checklist​

Foundation for evaluating tokenomic patterns.

1. Purpose & Utility Assessment

  • Does the token serve a genuine purpose in the protocol ecosystem?
  • Is the token necessary or just "nice to have"?
  • Does the protocol gain value in fiat terms independent of the token?

2. Supply Mechanics

  • Analyze circulating, total, and maximum supply metrics
  • Evaluate inflation/emission schedule and issuance rate
  • Document any burn mechanisms and their effectiveness

3. Distribution & Allocation

  • Team/advisor token allocation percentages and vesting periods
  • Private/seed sale conditions compared to public pricing
  • Treasury allocation and funding model

4. Economic Flow Analysis

  • Does value flow into the token economy from external sources?
  • Do holders have pressure to sell immediately or reasons to hold?
  • Are there Ponzi-like elements in the token structure?

5. Governance Integration

  • Voting power allocation mechanics
  • Proposal thresholds and quorum requirements
  • Incentives for governance participation

6. Stress Testing

  • How exposed is the token to market shocks?
  • Are there feedback loops that could accelerate a crash?
  • Does the system demonstrate resilience in simulations?

Key Metrics​

Track their fundamental data side growth. Map out HTF support levels on charts.

Understand the balance and flow of protocol supply vs demand from fundamentals.

  • Supply & Demand
  • Maximum & Circulating Supply
  • Inflation
  • Deflation
  • Rule of Thumb for Inflation
  • Market Cap
  • Unit Bias
  • Fully Diluted Value
  • Trading Volume
  • Initial Distribution
  • Vesting Schedule
  • Current Distribution
  • Demand-side Tokenomics
  • Token Utility
  • Financial Incentives
  • Growth & Marketing Allocation

Evolve​

  1. Maintain a "lessons learned" section after each analysis
  2. Add protocol-specific sections for DeFi, NFT, or infrastructure projects
  3. Integrate quantitative metrics and comparative benchmarks over time
  4. Update for emerging tokenomic models and regulatory changes

Simulation Components​

Consider incorporating simulation tools to stress-test token models:

  • Run scenario planning across optimistic/realistic/pessimistic conditions
  • Test token resilience under various market pressures
  • Model the impact of vesting schedules on market dynamics

Design​

Tokenomics offers marketing a powerful go-to-market strategy for creating loyal customers and bootstrapping critical mass in the Web3 era.

Community Building

  • Leverage digital identity and reputation systems to create community belonging
  • Implement tokengated commerce for exclusive product/content access
  • Create tiered membership levels based on token holdings
  • Develop community-driven governance mechanisms

Incentive Structure

  • Early adoption rewards with higher token allocations
  • Referral programs with token incentives
  • Loyalty rewards for consistent engagement
  • Content creation and curation incentives

Web3 Integration Points

  • Personalize experiences based on on-chain transaction history
  • Implement AR/VR experiences accessible through token ownership
  • Create cross-platform token utility across multiple devices
  • Develop metaverse presence with token-based access

Measurement Framework

  • Track token velocity (how quickly tokens circulate)
  • Measure community engagement metrics tied to token holdings
  • Monitor token distribution equity across stakeholder groups
  • Analyze retention rates of token holders vs. non-holders

Distribution​

Tokenomics distribution and flow analysis.

Mantra

Communities create tokens, tokens don't create communities.

Token Generation Events​

The trend of extensive private fundraising and inflated valuations has made many new token launches unattractive for public investors, as the potential upside has already been captured by insiders before the token is publicly tradable.

Key Insights:

  1. The majority of upside for new tokens is now being captured privately before the public launch.
  2. Founders are accepting private deals that inflate their personal wealth without requiring market validation.
  3. Private investors ("team players") who get in early often end up being net negative for the project.
  4. The privatization of price discovery and inflated valuations from VC markets have made many new token launches un-investable.

Key Terms:

  • Low float, high FDV: Refers to tokens that have a small circulating supply (float) relative to their fully diluted valuation (FDV). This can lead to price volatility.
  • Private capture: The phenomenon where private investors capture most of a token's value before public launch, leaving less upside for retail investors.
  • Phantom pricing: Unrealistic valuations assigned to tokens based on private deals rather than market demand.
  • Team players: Private investors who get into a project early, but often provide little value or even have a net negative impact.
  • Price discovery: The process of determining the market price of an asset through trading between buyers and sellers. This is increasingly happening privately for new tokens.

Analysis​

Dune - Cash Cows Analysis

TOKENTYPEANALYSIS
HeliumDePINTodo
BAXUSDePINTodo
$TAOAITodo
Agent TankDeFAI
$FLUIDDeFITodo
$AAVEDeFITodo
$GEODDePINTodo
$KAITOSOCIALTodo
$SL1Todo