What is tokenomics?
How does tokenomics work?
– Supply
– Token allocations and vesting periods
– Mining and staking
– Yields
– Token burns
Tokenomics examples
What is Tokenomics?
Tokenomics is a term used to describe the economics of a specific cryptocurrency or token. It includes things like the total supply of tokens, how they will be distributed, the method of distribution (such as mining or staking), and any rules governing the token’s use.
How Does Tokenomics Work?
Tokenomics is designed to create a system that incentivizes user behavior that benefits the network while penalizing behavior that harms it. Here are some factors that are typically considered:
Supply: The total number of tokens that exist or will ever exist. This can create scarcity (like Bitcoin’s 21 million limit) and influence the price.
Token Allocations and Vesting Periods: This refers to how tokens are divided and distributed among founders, team members, investors, and users. Vesting periods (the time frame in which certain tokens become available) can prevent sudden sell-offs that would negatively impact the price.
Mining and Staking: These are two ways tokens can be distributed or minted. Mining involves validating transactions and adding them to the blockchain, while staking involves users participating in the network by holding and “staking” their tokens.
Yields: Some networks offer yields or interest rates for staking or lending tokens. This incentivizes users to hold their tokens and can help stabilize the price.
Token Burns: Some projects periodically “burn” (destroy) tokens to reduce supply and potentially increase the price of each remaining token.
Tokenomics Examples
Bitcoin: The original cryptocurrency has a maximum supply of 21 million coins. New bitcoins are minted through the mining process, with the reward halving approximately every four years in an event known as the “halving.” This scarcity is a key part of Bitcoin’s tokenomics and its value proposition.
Binance Coin (BNB): Binance uses 20% of its profits each quarter to buy back and burn BNB tokens. This reduces the total supply and can increase the price per token.
Ethereum 2.0 (ETH): Ethereum is moving from a mining model to a staking model where validators are chosen to create new blocks based on the number of ETH they hold and are willing to “stake” or lock up. This could lower the energy consumption of Ethereum and incentivize users to hold their ETH.
