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As the name may imply, Tokenomics is a blend of token and economics. Tokenomics studies the economics of tokens. It is an all-inclusive and broad term used to cover all the factors that make cryptocurrency attractive to investors. It includes the supply and demand of the tokens, management, allocation, regulation, distribution, incentives, and many others.
The concept of tokenomics is very essential to investors in the Defi market because it assists them in deciding on the token to invest in. A token with a well-designed project around it tends to last longer than ones that have fewer projects. New investors will usually be interested in investing on a platform that has projects which will give a boost to the price of their tokens.
Characteristics Of Tokenomics
The economic design of a token will determine whether people will invest in it or not. Cryptocurrency has its peculiar monetary policies just like the traditional monetary system does. Tokenomics sees to the economics of crypto and the interesting programs that determine the way a token will be distributed. It also involves the various uses of the token. Here are some of the factors that affect tokenonmics.
- Mining and Staking
There is an incentive, on the network, that can be earned by those whose computer became the first to solve the math puzzle that is required in generating new coins. The incentive is just the tokens that will be given to them for the work they have done. Staking also attracts rewards. Rewards are given on the coins they have staked for the contract of minting new tokens.
- Yield
Crypto platforms also give out a massive yield to encourage investors to do business with their tokens on their platforms. The investors will be rewarded in tokens.
- Burning of Tokens and the supply of Tokens
By the principle of demand and supply, the scarcity of a commodity will raise the value of such commodity. Burning of tokens simply means the removal of excess tokens from circulation in Defi ecosystem. This is needed to make the token scarce so that it can add on more value. Some tokens, however, are unlimited in their supplies in circulation. Some cryptocurrencies are extremely scarce. An example of such a token is Non-fungible tokens (NFT). They are so scarce, as to have just one minted token available in the entire Defi.
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