A Quick Introduction To Tokenomics
In recent years, tokens were introduced to the market with the primary reason for giving adequate liquidity to permit clients to purchase and utilize tokens at a reasonable cost. However, the tokens were listed on the Exchange, the lack of a logical pricing formula made these tokens the target of speculative intentions. The users of the tokens enormously decreased to buy them after seeing such exaggerated fluctuations. This situation substantially diminishes the readiness to purchase and utilize the token. The result runs counter to the original purpose.
What is Tokenomics?
Tokenomics is a self-funding mechanism for projects within the crypto economy and helps build the ecosystem around the underlying project of the token. It combines elements of economic incentives, game theory, cryptography, consensus, and computer science. Tokenomics deals with setting the feasible incentive mechanism, distributing the tokens and preventing fraud in the system, etc. The appearance of blockchain technology makes the value exchange possible on the internet leading to the rapid growth of business models based on blockchain in recent years.
Tokenomics plays a significant role in connecting the programmable token with a specific service and creates a circular ecosystem with a level of uncertainty. Still, it is crucial to explore and find out the general rules for tokenomics.
How does a token’s value increase?
A token can get its value in two ways. The first way is by its intrinsic value and speculative value.
- Intrinsic value: The value that the token gains from the credibility and utility of its project.
- Speculative value: The value that the token gains from speculative traders who expect its price to fluctuate in the near future.
Though speculative investors are imperative in any ecosystem, it is dangerous to price a token absolutely based on its speculative value. For real sustenance, it is essential for a token to be intensely dependent on its intrinsic value. But how does a token get its intrinsic value? Well, the intrinsic value is decided by the underlying project and how much percentage of this value is captured by the token.
William Mougayar came up with three tenets behind a token’s value. They are:
- Role
- Purpose
- Features
Each token role has its own set of features and purpose which are detailed in the following table:
An explanation of each role of a token :
Right :
By taking ownership of a specific token, the holder gets certain rights within an ecosystem.
Value Exchange :
Tokens create an internal financial framework within the limits of the project. This will help the buyers and sellers to trade value within the ecosystem. This creation and maintenance of individual, internal economies are one of the critical tasks for tokens.
Toll :
This can also act as a toll gateway to allow users to utilize certain functionalities of a particular ecosystem.
Function :
Tokens can enable the holders to improve the user experience within the limits of the particular ecosystem.
Currency :
It can be used to conduct transactions within and outside a particular ecosystem.
Earnings :
To conclude, if a token fulfills more than one of these properties then it will become more valuable. More properties a token attain, higher will be its value.
Tokenomics, while still a developing field of study, gives a few curious opportunities for analysts and investors alike to evaluate each token project’s potential for success.
03/12/2019
