Why are Tokenomics so important?
Ignore the bear market and learn something critical to cryptos!
Welcome back homies!
BEAR MARKET IS HERE
It’s here and it’s brutal, Bitcoin has already dropped to 20k which I didn’t expect to happen so soon. Look at the top cryptos out, major reds, the tough times are just beginning!
I started with crypto in the hype of 2017 but I didn’t buy until 2018 Jan, which was essenntialy the top of the crypto 2017 bubble. The years between 2018-2019 were painful, I lost 80% of my portfolios - many alt coins from 2017 cycle never even recovered - look at Litecoin, NEO etc… they are dead.
But what I have learned from the last bear market is that it’s the best time to invest, buy, learn about cryptos! Bitcoin is the holy grail of crypto because of its pristine tokenomics. But never trust the alts, I am not a maxi but I believe in alts, some can/will change the world!
The last weeks have been tough so just take a break and build better positions for the 2024 bull run. Keep an eye on the next bull run and ignore the temporary hype. Real PROJECTS survive the bear market and new one’s thrive in the bear markets! I would say, this cloud has a silver lining!
Just to be real with you guys about investing - keep BTC as the major assest, 60-90% of your crypto portfolio should be in BTC, imo. The other 10-40% can be rotated as per your risk appetite. Investing in tokens can be life-changing - riding some coin from 1$ to 100$ is always fun, so knowing the right tokens will help you understand crypto on a deeper level! Try! This post is all about that!
Let’s look at the numbers today!
There are in total 13470 cryptocurrencies in circulation today. That’s just insane. I have been in crypto since 2018 and I have never wandered outside of the 1st page on CoinGecko. The TOP 100 are the ones that catch my attention. Now, 99% of these projects are shit. The Crypto Projects which have found some usage in the real world are Bitcoin, Ethereum(L1 + L2s) and some stablecoins(Tether, USDC). The majority of the cryptos are not used by a lot of people(>100k), adoption is very, very low.
The strange point is that Crypto is so hot right now that the VCs have taken this market at more than 1 trillion. Bitcoin is king with a dominance of 44.5% and Ethereum trailing at 16.9%.
Fundings and fundings are everywhere, a little less in the last couple of months but still 5x more than the 2017 bull run.
Now, with thousands of worthless projects out there, it takes eagle eyes to find the real gems. In today’s newsletter, we will examine some crypto projects and how they have engineered their tokenomics to find utility in this brutal market. Now, let’s ignore the bear market and dive deep into the maths!
WHAT ARE TOKENOMICS?
A portmanteau of “token” and “economics,” tokenomics is a catch-all for the elements that make a particular cryptocurrency valuable and interesting to investors.
-CoinDesk
A crypto token has to be designed carefully since its the only way a token interacts with the crypto audience - investors, users, cyberpunks
For example -
Bitcoin is generated through PoW where miners are rewarded BTC. Bitcoin has a finite supply of 21 million. The issuance is programmed that every 4 years, the rewards to the miners are cut in half - from 12.5 to 6.25 BTC, which happened in the last halvening of May 2020. Ethereum has an infinite supply with new ETHs issued every year.
Beyond these two giants, who have built their credibility over time, one should also understand how newer projects, web3 tokens hold value/create/demand value. I have been diving deep into tokenonics, since I was wondering if I launch a web3 company, how would I create the right tokenomics. A token is two major vectors - token distribuition and vesting schedule.
Example - $SOLANA token
LEARN TOKENOMICS LIKE A BOSS!
What’s the supply and issuance mechanics? Very key to know how many of these tokens exists, how many will be minted over time, what’s the max supply and similar questions.
What about some other parameters? Which chains should I deploy my token into? We have an option between Layer 1s - ETH, ADA, AVAX, SOL or Layer 2s - MATIC, OPTIMISM, ZKRollUps. So remember, if the L1 dies, your token will probably fail too. So, some tokens live AAVE are deployed on L1 and L2s, smart choice.
Do we do a private sale before the token is released to the general public? ← Very important for VCs and in Pump & Dumps!
What’s the utility of the token? Is it a governance token, a DAO token etc.
Is your token fungible? NFTs are non-fungible assets(things which cant change) but tokens are fungible, like it can be exchanged between users on exchanges, so its utility is pretty limited.
Who in your ecosystem will buy the token and why do they buy it? When I look at the ecosystem, it’s really difficult to build an ecosystem around a token. In reality, it’s easier for a founder to launch a token and then just distribuite it within freinds and families. So, essentially, make him the de-facto CEO, bossman of the company. The best way to look at a token is to compare it with a random 5 person startup out there! Will these guys succeed? Yeah or nah, really upto you to decide, odds are 99% startups fail.
LUNA and CELSIUS are big examples of tokens which failed insipte of backing of top VCs out there!
How are token’s distribuited within the ecosystem?
MATIC Token Allocation
AVALANCHE
POLKADOT
Will there be an airdrop? - Some tokens are airdropped after we use the protocol or the app. I have observed is that companies want you to use their tokens in a proactive fashion, rather than in a fashion, where you can just claim some airdrops by just using the protocol once. Airdrops are a fancy way to engage with the ecosystem, so I am always in favor of this model. Usually, token companies only airdrop a very small % of the tokens, so it’s a win-win game.
That’s all about tokens and tokenomics behind it. If you liked the read, share it with your friends!
Cheers,
Abhishek