Why does Tokenomics Play an Important Role in Cryptocurrencies?
Intro to Tokenomics
Tokenomics is a shortened word of token economics. Tokenomics plays an important role for all cryptocurrencies and provides helpful insights into the economical structure and use case of a token. Essentially, they act as the foundation for a cryptocurrency including for both its use cases and its value. Over the course of the past several years, we have seen a fair share of cryptocurrencies being released on various blockchains such as on Ethereum, Polygon, Binance Smart Chain, as well as on the ThunderCore Blockchain. Very recently on TTSwap, there have been many new tokens such as $FTT, $RAM, $GUESS, $OOL, and more continue to be listed by third-party DApps and developers.
A lot of developers tend to deploy their own token to empower their DApp or release incentive tokens in hopes of driving users to use their DApp as well as to retain users. Each of these tokens has its own unique set of tokenomics and use cases that give them their market value. But there are several key factors of a token’s tokenomics that determine the scope of users or investors who would be interested in these tokens and may have an impact on the value of a token for the long term.
This article will cover the key factors of tokenomics that may play an important role in the value of cryptocurrencies. In the next section, this article covers three key factors that hold significance for cryptocurrencies. Note that there may be more factors, but this article will only introduce three key factors. Also, please be reminded that this is not financial advice and we recommend everyone to DYOR (do your own research) before investing in any asset.
Key Tokenomics Factors
There are several key factors of tokenomics that both the developers of a token consider and a crypto investor looks at; this includes but is not limited to: supply, token allocation, and utility.
1. Supply
Tokens can have different kinds of models and the amount of initial supply minted may vary depending on their use case. Take for example Ram Protocol’s token ($RAM) — $RAM has a limited supply of 100 Million tokens. On the other hand, TT Farm’s token ($FTT) — $FTT also has a limited supply of only 1 Million tokens. $RAM has a supply that is 100x more than $FTT. However, when we compare the price of $FTT against $RAM on TTSwap we see that $FTT holds a higher value compared to $RAM.
When looking at supply, we can implement the economic models of supply and demand to determine our “Price Equilibrium”, in this case, we will refer to this as the market value. A token that has a lower supply is more likely to have a higher market value compared to a token that has a higher supply. When comparing $RAM and $FTT’s value, we can determine that the economic model of supply and demand is true for not only traditional economics, but also for tokenomics of cryptocurrencies.
2. Token Allocation
When tokens are minted, they are usually allocated into different wallet addresses which are sometimes known as pools. These tokens are allocated depending on their usage which is ultimately determined by the developers of the token.
Let’s take a look at the token allocation of $RAM and $FTT.
Ram Protocol’s token allocation for $RAM:
TT Farm’s token allocation for $FTT:
Tokens are allocated into different pools/wallets depending on the uses that the developers planned. Both $FTT and $RAM have different token allocations and this is totally normal due to the fact each token has its own utilities and use cases.
3. Utility
After taking a look at the allocation of the tokens, we can more easily determine the utility of these tokens. Oftentimes developers will share the utility of a token. Such as whether they are an incentive token or whether they have certain uses such as discounts, governance, VIP benefits, and more. The utility of a token plays a crucial role in the development of the value of a token. At the same time, the token’s utility can be very closely linked to the token’s allocation as shown in the section above.
Here’s a comparison of the utilities of $RAM and $FTT:
Why do these factors play a significance for cryptocurrencies?
Cryptocurrency investors and adaptors commonly tend to consider the future value of cryptocurrencies before investing in them. Unlike sophisticated trading tools and metrics, the tokenomics provide investors with an initial understanding of the value. An easy answer to determining value is the supply and demand of a token — this is the most basic understanding for even traders and investors in the stock market. The value of a cryptocurrency is not only determined by the market demand, but also by the total supply as well as the utility of tokens.
If you are a crypto investor or are interested in investing into cryptocurrencies, we recommend you do your own research into a token’s tokenomics before investing.
At the same time, if you’re a developer interested in deploying your own token, do keep in mind your tokenomic structure before minting your tokens. If you’re interested in deploying your own tokens on ThunderCore check out how to Deploy your own ERC20 as well as other helpful articles on the Developers Portal!
