Tokenomics describes the factors that affect the use and value of tokens, including tokens Creation, supply and demand, incentive mechanisms, etc. Before deciding to participate, it is crucial to evaluate a project’s token economics, as token economics are critical to a blockchain project’s future prospects. Crypto projects should carefully design their token economics to ensure sustainable long-term development.

For more information about tokens, please refer to the entry "What are Coin and Tokens".

Here are some variables that developers typically change to affect token economics.

Token Supply

Maximum Supply: Over the life of this cryptocurrency The maximum number that exists. For example, Bitcoin has a maximum supply of 21 million coins and Binance Coin has a maximum supply of 200 million coins. Some coins do not have a maximum supply. For example, the supply of Ethereum is increasing every year. Stablecoins such as USDT, USDC, and BUSD do not have a maximum supply because these tokens are issued against the reserves backing the token.

Total supply: The total number of tokens that exist on the blockchain, including tokens that are not in public circulation. For example, someone in the wallet may have forgotten some coins, but these coins should be added to the total supply. However, the total supply does not include coins that have been burned.

Circulating Supply: The number of tokens in circulation. Circulating supply can be used to determine a cryptocurrency’s market capitalization. This number may continually fluctuate depending on how many new tokens are minted and burned, or otherwise locked.

Token destruction

Token destruction refers to the permanent withdrawal from circulation by sending to a wallet where no one owns the key of the pass. The goal of token burning is to reduce the overall supply of a cryptocurrency, thereby increasing demand and preventing inflation.

Yield

Yield mining is a method of pursuing investment returns by depositing cryptocurrency into a pool. Decentralized finance platforms offer high yields to incentivize people to buy and stake tokens. People can lend funds to anyone who wishes to obtain a loan through smart contracts, earning interest and principal in the form of tokens.

For more information about token income, please refer to the entry "What is income farming/liquidity mining".

Mining and Staking

Initial blockchains such as Bitcoin and several other cryptocurrencies issued tokens to incentivize Miners verify transactions. This process is called Proof of Work (PoW). New tokens are awarded to those who dedicate their computing power to mining new blocks and adding them to the blockchain. In a proof-of-stake (PoS) platform, cryptocurrency owners can verify block transactions based on the number of staked tokens. Cardano and Solana are the main platforms using this model.

Summary

In addition to the above variables, there are also other factors, such as token distribution and ownership, token utility and token governance. All will affect the token economy. It’s important to note that no single factor allows you to fully understand a token. The assessment should be based on as many factors as possible and analyzed as a whole.