Intro to Tokenomics
5/5: Art not Science: Use & Application
Using tokenomics to evaluate a crypto project
Before purchasing any cryptocurrency, it’s always wise to investigate its tokenomics. This is the best way to evaluate the fundamentals of the project and whether it has any long-term profitability.
To recap, here’s a DYOR Checklist of some of the essential questions to ask regarding a cryptocurrency’s tokenomics:
🔲 How many coins currently exist, and how many more will be issued in the future?
🔲 Is the token supply increasing (inflationary) or decreasing (deflationary)?
🔲 What is the currency’s utility, and does this connect to tangible real-world use cases?
🔲 How are new tokens issued? Can they be mined by anyone? Are they difficult to produce? Or is a single individual relied upon to manage the whole process, such as is the case with the Federal Reserve?
🔲 What does ownership distribution look like–is it heavily concentrated in the hands of a few investors (like Wall Street, DogeCoin or Silicon Valley), or is it more evenly spread out across a wide range of wallets (like Bitcoin)?
🔲 What are the incentive mechanisms for owning this cryptocurrency?
🔲 Who is behind the project? Do they have the necessary experience to pull it off? (For example, the bulk of Fed Chair Jerome Powell’s training and experience is as an attorney and a politician, not as an economist. Would you put your currency project in such an individual’s hands without any checks or balances? More importantly, would you invest in such a project?
🔲 What is the technology backing the project? Is it tried and tested, or does it have a history of spectacular failures? Does it rely on legacy infrastructure from the 1970s?
🔲 Does it have growth potential? Why? How?
🔲 Is the team transparent with their updates and progress?(If you keep most of your wealth in Dollars, do you watch the Fed’s FOMC meetings? You’ll be pleased to know that Fed Chair Jerome Powell is “Just beginning to understand how little they understand about inflation.” His words.)
🔲 Does the project have an active community of supporters and developers working on the project? Or do they rely on powerful institutions to enforce their use?
Now that you have a better grasp of the fundamentals of evaluating a cryptocurrency, you can go through these questions on your own. Use them as a springboard for the due-diligence deep dive into any potential investments… before putting any hard-earned money into the project. As always, DYOR and never invest more than you can afford to lose!
Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.