Tokenomics

Tokenomics is , as the name suggests , the economics of a cryptocurrency token. For the purposes of this we’re going to focus mainly on in game and governance based tokens.

Any cryptocurrency is accompanied by a (more often than not) publicly viewable whitepaper that outlines broadly how demand and supply operate in relation to the token.

Beginning with supply, token founders will make it clear how many of a token exists and also how many will exist in the future. Bitcoin for example has a limit of 21,000,000 coins(with 19,000,000 currently in circulation) and from this we can make an accurate assumption that the last bitcoin will be mined in 120 years. Dogecoin as another example does not have a supply cap and so inflates at a rate of about 5% per year. A token could be supplied in a number of different ways like mining it or completing quests in metaverse based games.

On the other side of the equation is demand. This is a more tricky aspect. There could be a myriad of reasons that you might want to hold a token for a particular project. You might need the token to play a game , it might give you voting rights on the decisions within an organisation , or you could be promised a reward for ‘staking’ the token for a prolonged timespan.

Without users wanting to hold the token for a specific or set of specific reasons it will likely become worthless. On top of this , if the token becomes overproduced it can become inflated and lose its value. Essentially the protocol that outlines how both the supply and demand are distributed is vital in the long term success of any token.

Unfortunately many in game tokens that are released experience a similar pattern. Early users play the game and are rewarded in the native token of said game. As demand increases so too does the price. As financial incentives to play the game rise , the number of players rise. When new players join the game the token can become overproduced , and can lose its value as those that joined with a purely financial mindset leave en masse. Once demand falls the price drops. People lose money and the token goes through incredibly high peaks and troughs taking its users with it on the rollercoaster ride.?

The best way to avoid this loop is to create a currency or game that places the user in the middle. There will always be those that enter a project ecosystem purely for financial gain but so too will there be those that enjoy having their voices heard , or having the opportunity to join a community of like minded individuals. By creating a game or ecosystem that users ENJOY first , founders can ensure they have a solid base of loyal members. Listening to them and rewarding those that joined early can be a great quid pro quo method of encouraging sustainable growth.

As such a new and emerging technology , tokens based on the blockchain are bound to be volatile while mass adoption takes hold. Token burning and other innovations will be introduced as ways to encourage steady progress as more and more legitimate firms enter this space.

Games such as FIFA (ultimate team packs) and Fortnite (skins) receive massive amounts of revenue by selling in game assets. Offering a tokenomics solution means gamers can spend money in exchange for real value and can even make profit based on the time they spend in a game. As such, tokenomics can be a fantastic way to offer its users a way to earn real rewards and benefit from the overall growth of a game or cryptocurrency. By rewarding people that are within a project's eco system a positive and perpetuating loop can be created where founders and active users can grow in tandem.