What is Tokenomics?

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What is Tokenomics?

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As complicated as it sounds, the crypto market has many similarities to regular financial markets like stocks and commodities. However, the nature of cryptocurrencies introduced some new concepts that can be used by traders and investors to evaluate a project to see how it’s planning to keep its value in the future.

In this article, we will discuss tokenomics and will go through some of the main factors together.

What is Tokenomics

Created by merging “Token” and “Economics”, Tokenomics refers to various factors that can influence a token’s value. Through tokenomics, a token can control its economy by incentivizing investors to buy, sell, or hold its supply.

Tokenomics are quite important in a token’s evaluation as they tell investors how a token is planning to keep its sustainable, long-term growth.

Here are a few factors to consider in tokenomics:

  • Limited or Unlimited Supply
  • Token Burns
  • Allocation and Vesting Period

Limited or Unlimited Supply

Crypto assets can have limited or unlimited supply which is usually defined in their whitepapers as part of their tokenomics. For example, Bitcoin has a limited supply of 21 million, meaning we will only have 21 million bitcoins, not more, not less. Ethereum on the other hand, has an unlimited supply.

Total Supply or Max Supply

The total supply or maximum supply is the total number of units a cryptocurrency will ever have. In other words, the token has a limited supply and the Maxiumum Supply shows the number. It’s worth mentioning that DIFX Token has a limited supply and its total supply is set at 550M.

Circulating Supply

The number of units of a cryptocurrency that are changing hands in the market. Cryptocurrency projects have different ways of increasing their circulating supply, meaning adding new units of their crypto to the market. 

Bitcoin, for example, needs high energy-consuming, special hardware to create new units and add them to its circulating supply.

At the moment, DIFX Token has a circulating supply of 272,250,000 tokens.

Total Market Cap

The total value of a cryptocurrency market is called the Total Capitalization or the Total Cap. The total cap is calculated by multiplying the circulating supply by its current price.

You can check the Total Market Cap of DIFX Token on CoinMarketCap.

What is a Token Burn Event

Token Burn is a technique that some crypto projects use to decrease the supply of their crypto asset. The idea here is that because crypto projects are based on supply and demand if we reduce the supply and the demand stays the same or even increases, the price of the asset will also increase.

This factor can be of importance for investors as it promises sustainable growth in the price of the crypto asset they want to invest in. Although, this factor is not guaranteed so you have you always have to do your own research before investing.

Allocation and Vesting Period

When a new crypto project gets launched, early investors, founders, and sometimes employees get a certain percentage of the token’s maximum supply. After a specific amount of time, the promised tokens will be transferred is called the vesting period.

The allocation process can happen through smart contracts which will be executed if the predefined time is passed or some other specific conditions are met.