Magik Labs ✨ | We’re Hiring!

Magik Labs ✨ | We’re Hiring!

29-05-2022

18:12

Tokenomics is the foundation of every project. A project’s success or failure depends heavily on how its tokenomics is structured. Here’s how you can evaluate a project’s tokenomics before investing in it.

1) Token’s intrinsic value A Token’s intrinsic value is defined by the purpose it serves. The token must serve some use case within the ecosystem. Either it should enable users to perform some actions or provide governance of the system.

One good example could be the @Ethereum blockchain. Every transaction on the network requires users to pay gas fees in $ETH.

@ethereum 2) Token Supply Token’s supply impacts its perceived value. The more scarce a token is, the more would be its perceived value.

@ethereum However, scarcity doesn’t alone make a token valuable. Other factors like circulating supply, maximum supply, market cap and fully diluted value are some of the important metrics that you should check.

@ethereum 3) Inflationary and deflationary mechanisms Inflation in crypto is technically similar to fiat inflation. Inflation occurs if the circulating supply of tokens increases and vice versa for deflation. A lot of projects rely on token emissions to reward their users with high APYs

@ethereum Usually, projects implement deflationary techniques like token burning mechanism to reduce the circulating supply. This prevents the price from going down drastically.

@ethereum 4) Allocation and distribution The token allocation chart helps to understand who holds the maximum amount of tokens. It could help you avoid a price crash. If VCs and whales hold a large number of tokens, there are high chances of them dumping the token.

@ethereum 5) Vesting Schedule A vesting period is a time when a token can’t be sold by the investor or team. It is important to understand how tokens are unlocked. A vesting schedule helps to prevent massive dumps by the investors. Actively tracking it could get you ahead in the game.

We hope some of these tips would come in handy to you while evaluating your next investment. Please like and retweet the first tweet to spread awareness.


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