Why delve into tokenomics?

In Web3 projects, a well-developed tokenomics model is crucial for the success of the project. Developers need to carefully design the tokenomics model to ensure the long-term sustainability of the project.

For ordinary users, carefully evaluating the tokenomics of a project is a crucial step before deciding to participate in it. Only by fully understanding the project itself can one increase the chances of investment success.

We can analyze the pros and cons of the token model through a specific case. The analysis is conducted from four dimensions: Token supply ( supply side ), Token utility ( demand side ), Token distribution ( holders situation ), Token governance ( long-term ecology ).

1. Token Supply

Evaluate the Token supply situation, there are 4 key indicators:

1. Maximum Supply: The upper limit of the number of Tokens specified by the code.
2. Circulation: The current number of circulating tokens ( is mainly affected by the unlocking schedule of the development team and investors, as well as ecosystem incentives ).
3. Current Market Cap: Current Price × Circulating Supply
4. Fully Diluted Market Cap: Current Price × Max Supply ( If the fully diluted market cap of a new project exceeds the industry benchmark, it indicates that the price is difficult to maintain )

In addition, the token burn mechanism also affects supply: continuously reducing token supply leads to deflation; continuously expanding supply leads to inflation.

Taking a certain project as an example:

• Total supply is 1 billion tokens
• 120 million reserved for the team, distributed over 6 years, indicating the team's long-term development intention.
• 280 million allocated to investors and airdrops, this is the actual initial circulation.
• The remaining 600 million is generated through mining, allowing for sustainable participation.
• Subsequent token buybacks will be conducted through business revenue.

Overall, the project is deflationary and has strong value support.

2. Token Utility

The utility of a Token represents its value, including actual use cases and appeal. It can be divided into three aspects:

1. Practicality: such as Gas fees ( Ether ), real-world payments ( Bitcoin )
2. Value accumulation: Staking ( to obtain partial product profits ), governance ( to vote on protocol changes )
3. memes and narratives: such as Dogecoin, mainly relying on internet popularity effects.

Taking a certain project as an example, its Token can be used for related services within the ecosystem, to pay for network service fees, to exchange for free data, or to participate in other functions. Relatively speaking, it has strong value support and is not purely a speculative coin.

3. Token Distribution

Token launch and distribution can be done in two ways:

1. Fair launch: There is no pre-distribution before allocation to the public, like Bitcoin.
2. Pre-mining release: first allocated to specific groups ( founding teams or investment institutions ), such as Ethereum.

A certain project adopts an advance allocation method, which aligns with the business logic of VC coin.

We also need to pay attention to:

• Holders: The behavior of institutional and individual investors is different, affecting the value of the Token.
• Is the distribution even: Large institutions holding most of the tokens poses a greater risk.
• Locking and releasing schedule: Is there a large amount of tokens about to enter circulation?

The Web3 industry standard is to allocate at least 50% of tokens to the community, effectively diluting the ownership of the founding team and investors.

4. Token Governance

The key lies in how to incentivize participants to ensure long-term sustainability. Many projects will increase staking mechanisms to enhance Token value in two ways:

1. Staking Incentives: Locking tokens to earn passive income, with a minimum token value being a multiple of future reward value.
2. Reduce circulation: Locking tokens reduces market supply and increases price.

A certain project also provides staking services to reduce selling pressure after going live and lower the actual circulating supply.

Summary

A good tokenomics model must have three key elements:

1. Reasonable staking mechanism: Bind user interests with project value, adjusting token supply.
2. More application scenarios: expanding based on the growth of the business itself
3. Steady growth in business revenue: the key lies in whether the business itself creates value.

Although the tokenomics model is important, everything depends on the business value itself; otherwise, it is just an "air coin". Currently, the tokenomics model is still rapidly evolving, but the core analytical dimensions remain unchanged: supply, demand, distribution, governance.