Tokenomics

With the emergence of many groundbreaking and technologically sound paradigms, the evolution of today’s crypto ecosystem has become highly dynamic. Among such, “Tokenomics” has been a powerful driving force in creating the prominence of Blockchain technology worldwide.

The word ‘Tokenomics’ comes from two words ‘token’ and ‘economics’. Understanding this highly innovative paradigm would not be justified if we do not understand tokens first.

What is a token?

Tokens, in a general sense, are value units distributed by an organization. However, with context to tokenomics, tokens are built directly on top of the blockchain. Tokens were rebranded with blockchain’s arrival, but the existence of tokens can be traced back to the 17th century when tokens were used to accommodate the shortage of money. Further in 1983, the idea of digital cash through tokens was also introduced.

In our day-to-day life, we come across various use cases of tokens such as concert tickets, gymnasium membership cards, and licenses, as they reflect value for a more specific use than currency. This importance may be in the form of access to a facility, asset rights, ownership, and more. This allows Tokens to perform various functions through the codification of values in every native ecosystem.

In a similar sense, a token in the crypto world is the representation of an asset, stake, value, or others that are usually given to the investors during a public sale. A token is not just limited to a specific role, it can serve various roles according to the need.

Now that we have a brief foundation with tokens and what they are, let’s get into tokenomics.

What is Tokenomics?

Tokenomics refers to the quality a token has which influences people (users and investors) to use it. This, in a sense, helps in building the entire community for the particular token for the underlying project. Simply placed, anything that could govern the value of a token can depict the quality of the token.

Basically, tokenomics is just a fancy term given to a well-defined, comprehensive use-case which can be digitalised and revolves around a token.

Tokenomics is a short term for a profusion of components encircling it. Let’s have a look at them:

● Team

A successful project must, of course, be backed by a highly talented and trustworthy team. The team behind the token is really crucial and is the deciding factor for its broad acceptance.

● Token Allocation

An even more crucial part is to successfully do the token allocation after the sale. It is also necessary to ensure that the tokens are given to the team and the consultants are locked. Founders who tend to have their project’s long-term future perspective would have a long lock-up period for their tokens.

● Business Model

The business model of the project is one of the most significant aspects to be taken care of. Ventures should have a robust model to make a continuous capital profit. For instance, decentralized apps should have a robust business plan for their productive execution.

● Real-world utility

The next thing needed to look at is to get the right insight on the project with its relevance in the real world. In other words, does the proposal have any actual value on the market? Is the platform of the project completely subject to the token? If so, this is a worthy investment initiative.

● Legal side

Following a substantial number of funds raised by ICOs in 2017 and 2018, regulatory oversight by numerous governing bodies has increased. The project you want should comply legally with all the regulations in the country in which it is built. A legal staff shall be in a position to ensure compliance with all rules.

● Token structure

The last thing we would look at is the token’s configuration and how well it blends into the project. This is a very deep topic and we will dwell on this in the following parts quite exclusively.

Conclusion

It’s not simple to understand the entire plethora of pitfalls your project can have. We can apply tokenomics according to the risk analysis and well-thought process. It further involves a lot of mathematical concepts to figure out how the whole system will work including the price stability of the token.

A poor environment could lead to legal problems and drastic unwelcoming consequences for the owners. For more information, you can contact with CapitalFinance team to understand various aspects of tokenomics and how your business can be transformed through this revolutionary concept.