Tokenomics is a term formed by the pair of two words “token” + “economy”. Tokenomics is, quite simply, how the value of the token is determined and what affects its value.
What does Tokenomics include?
Tokenomics includes all activities that deal with a currency or token in some way. The token can be created by an ICO and subsequently traded on cryptocurrency exchanges. Another instance is when a currency is used to incentivize network participants to secure the blockchain.
Tokenomics can even include the destruction or removal of token from the network. This occurs when the tokens are written using proof-of-write mining algorithms or they are removed from circulation in what we call a Buy Back & Burn.
Why is tokenomics important?
Tokenomics is especially important in the crypto space due to its lack of regulation. As there are no laws governing cryptocurrencies, tokenomics provides an opportunity for cryptocurrencies to be evaluated on their real-life merit, not just how they are traded on exchanges.
The different Tokenomics terms explained:
Asset valuation
The process of determining the value of a coin or token. This is especially useful for investors looking to buy new coins. If they can estimate what a coin will be worth in the future, it might be easier to decide whether or not it’s worth investing in its price now. Coin valuation is also important for traders who have made a significant investment in a coin and want to know if its price is going up or down.
Inflation
An increase in the general price level of goods and services in an economy. Inflation can also occur when people expect prices to fall, therefore changing their preference for wanting money now or later. Inflation occurs when the money supply is greater than the total output of an economy. Also known as “price inflation”.
Deflation
A decrease in the general level of prices for goods and services. This occurs when consumers and entities anticipate falling prices and therefore decide to buy more now, before these items become more affordable. Deflation occurs when the money supply is less than the total output of an economy. Also known as “price deflation”.
Elasticity of supply and demand
If a currency has high elasticity of supply and demand, its price will be more affected by changes in demand relative to its supply. This means that if the demand for a particular currency increases, the currency will have a more positive price action ($$) than if the demand for the same currency falls.
Elasticity of supply and demand = (% change in quantity supplied) / (% change in quantity demanded).
Community Rewards
When a coin has a significant community, it can play a role in working to improve the coin’s fundamentals. This is an example of market-based governance that has the potential to raise the price of a currency because it is an indicator of trust in the network.
Pump and dump schematics
A pump-and-dump scheme is when someone buys a large amount of a certain currency, which increases its value at first. As soon as other investors see that the price is going up, they might as well buy some. This can create a “hype” where everyone is buying the coin, making its price even higher. Eventually, everyone who bought some would sell it back at a high price, which makes them profitable buying low and selling high.
In this way, pump-and-dump schemes can cause the price of a coin to artificially inflate, and it will fall again when all of its investors start selling their coins.
BLOCKBR is a fintech that combines technological innovation and digital knowledge to structure financial products by transforming physical assets into digital ones, called tokens.
We tokenize from end to end, from simple deals for funding or receivables to super structured products for secondary market offers in Brazil, Europe and Asia.
Creating new financial products for the market in a democratic and decentralized way makes it simpler, as well as more efficient, how people will invest money and learn about new financial products.
