Here’s why You Need Tokenomics
Can?tokenomics make or break your crypto project?
*All Web3 terms used in this article are listed below for your reference.
“Tokenomics”, “ERC”, “ICO”. There are a lot of Web3 terms floating around the internet. And while it may come as a surprise to some, the blockchain isn’t new. In fact, it’s been around for almost a decade.
Still, there’s a lot of catching up for people who’re entering this complex space for the first time. Specifically, if you’re looking to build your very own Web3 project. Understanding tokenomics and its value in the Web3 economy is a great place to begin.
And while you should always do your own research (DYOR), here are some pointers to get you started.
What are coins? What are tokens? What is tokenomics?
Blockchain Layer-1
Layer-1 is the primary framework of the blockchain.
Coins are the base assets of these blockchains like #Bitcoin and #Ethereum and are necessary for them to function. Without some form of currency, the blockchain would not be able to verify and complete transactions.
It’s important to note that each blockchain holds only one coin.
Blockchain Layer-2
Layer-2 includes all other assets that are linked to the blockchain, known as tokens.
Unlike #coins, tokens are built on top of existing blockchains through various platforms and applications.
Tokens are types of digital assets and a new form of currency quickly gaining popularity in the world of cryptocurrency. They form part of the decentralised finance (DeFi) system.
These are made up of fungible tokens such as Ether (ETH) and Bitcoin (BTC) which are exchangeable like money and share the same value. And non-fungible tokens (NFTs) which are unique one-of-one digital assets.
Essentially tokenomics is the all-around economics that gives particular crypto tokens their value. This includes things like distribution, utility, and supply and demand.
Various factors go into designing a successful token.
Designing a token
The importance of expert tokenomics is often overlooked. Yet, it’s as important in #Web3 as it is in traditional finance and economics IRL. Much like with traditional financial mechanisms, tokens require professional verification and regulation, like audits.
Applying the same types of specialised design efforts is a necessary part of building successful #cryptocurrencies. But designing the policies for your token isn’t an easy task.
It requires a lot of thought and planning with many factors to consider. For example, its functions and model like the kind of utilities included or price regulations and requirements involved. If done well, you could reap many benefits by incorporating tokens into your Web3 project.
See examples of some of the factors to consider and the benefits of expert tokenomics when designing #digitalassets, below.
Utility
The more use cases you include in your token, the more chance there is that it’ll maintain market stability, which is great, especially in times of economic recession. While this is of course, circumstantial, the knock-on effects of utilities are typically positive.
Utilities provide people with the various incentive and reward mechanisms of a token. These could range from early access to content and events to discounts and merch.
Inflationary versus deflationary models
Tokenomics includes things like inflation, deflation, and supply and demand. Understanding these concepts is essential for anyone looking to invest in tokens.
Generally, inflationary models have no limit to the number of tokens that can be generated. Whereas deflationary designs have a maximum limit to supply.
The supply and demand determine the price of a token. If there’s more demand for a token than supply, the price of the token will go up. If there’s more supply than demand, the price of the token will go down.
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Benefits of a Web3 project with your own built-in currency
A successful tokenomics model may just be the key to thriving #crypto projects. Among the many potential utilities you could design into your tokenomics, #staking and governance are the most common. Check out their advantages below.
User governance
Token governance gives users certain rights within a project’s protocol. For example, voting and ownership rights to decide on project goals within a #decentralized autonomous organisation (#DAO).
Staking
This acts as a reward system for holders and at the same time as a means to securely validate transactions. An example consensus mechanism includes Proof of Stake (#PoS).
Example of tokenomics IRL
Project Nice?is an initiative by the people of?Nicework. The project aims to support creative talent and make people feel good — one random act of niceness at a time.
Watch this space and check out some examples of the collection’s #tokenomics below.
The Project Nice token
Layer 2 ERC-721
Built on the Ethereum #blockchain, this is the most popular fungible token standard.
ERC-721s are exchangeable like money and can be sent to any Ethereum address.
Inflationary vs deflationary
Project Nice is adopting a mixed model that combines a primary inflationary mechanism with some deflationary elements. Plus, to ensure impartiality, the inflation is predetermined through a smart contract protocol.
Actors (people who have our tokens):
Actions (utility of the token):
If you’re thinking about investing in #tokens, whether you’re a first-timer or an OG, make sure you understand all of these factors before making any decisions. And as always, do your own research. This is an opinion-based piece and not financial advice.
Learn more about Project Nice NFTs and how you can get involved?here.
Web3 terms used in this article
?? DYOR: Do your own research
?? ERC: #Ethereum request for comment
?? #ICO: Initial coin offering
???OG: Original gangster
?? #DeFi: Decentralised Finance
?? IRL: In real life
?? #ETH: Ether
? BTC: Bitcoin
? POS: Proof of stake