Step by Step Guide to Tokenomics Analysis in Crypto
Fundamental analysis is an analysis method that every cryptocurrency investor should know. With fundamental analysis, users can estimate the price of a project and make investment decisions by looking at the basic dynamics of a project.
The most important sub-category of fundamental analysis is tokenomics analysis. So what does tokenomics mean? What are the basic steps of tokenomics analysis? How do we know if a project has a good tokenomics? You will find answers to these questions in this article.
Before starting this article, if you are not familiar with fundamental analysis, you can first read my article titled “Introduction to Fundamental Analysis in Cryptocurrencies”.
Step-1: Use Cases
The first thing to consider when performing tokenomics analysis is the use cases of the cryptocurrency that the project makes available. So far, I have seen many projects with very good ideas, but at the same time, I realized that the cryptocurrencies that these projects offer are useless. This, of course, was reflected in the price over time.
Now let’s take a look at the use cases of cryptocurrencies.
Payments and transactions: Tokens can be used as a payment method or as a means to execute transactions on the blockchain network. $BNB is one of the examples of cryptocurrencies that can be given in this regard.
Utility: Tokens can also have a utility. In other words, the project can offer its users in-platform or real-world use cases. Here, tokens are used to transact in these use cases. The best examples we can give are fan tokens.
Governance: Some projects offer voting rights to their users. With this voting right, users can have a say in important decisions about the future of the project. To be eligible to vote, you must hold the project’s cryptocurrency. The most obvious example of this is $UNI.
Financial Enstrument: Some tokens are used as a financial instrument. By using these tokens, users earn on APY or APR. $DAI is the most appropriate example of this.
Premium Rights: Projects have their own platforms and can grant premium rights to their users on these platforms. In order to access these premium rights, users use the cryptocurrency of that project. An example of this is $NWC.
Step-2: Token Supply
Another metric to look at after the use cases is the token supply. What should be noted here is the circulating supply and the total supply. The important thing is that the ratio of circulating supply to total supply is high.
If the circulating supply ratio is low, it should be taken into account that this will increase over time. If the released tokens do not see enough demand over time, this will reflect negatively on the price.
Step-3: Token Distribution
Now, token distribution is important to us. A fair distribution will ensure low price volatility. For example, in the seed sale of a project, if a VC has acquired a significant portion of the tokens, when the token goes on the market, the price will be dumped by the sale of these VCs for profit.
In addition, the distribution ratios should be fair so that the project will not be subject to price manipulation in the future. If there is no fair distribution, holders with a high percentage of tokens may engage in price manipulation.
Step-4: Vesting
Another metric that should be considered simultaneously with the token distribution is vesting. Vesting includes the release times and rates of the project’s locked tokens.
Every trader should follow this calendar regularly and be alert to price volatility that may arise in swings.
Step-5: Stabilization Mechanism
Another often overlooked metric is the stabilization mechanism. With this mechanism, it is tried to obtain information about how long the token will reach price stability.
Stabilization can be achieved through token lock-ins, staking mechanisms, defi (APY&APR) mechanisms, token buybacks and token burns.
In conclusion, while performing tokenomics analysis, the first thing to consider is use cases, token supply, token distribution, vesting and stabilization mechanisme.
Semih YİĞİT
Blockchain Enthusiast and Web3 Marketer,
Content Creator,
Community Manager,
