What Is Tokenomics? Why Is Tokenomics Important

Aug 05 2022

1. What is Tokenomics?

Tokenomics combines economics and tokens. It is simply defined as the cryptocurrency economy, how it is created, and how it is applied to the project's operating model.

A project that has thoughtful and well-designed incentives to buy and hold tokens for the long haul is more likely to outlive and perform better than a project that hasn't created an ecosystem around its token, so tokenomics is a crucial concept to take into account when making an investment decision. A solid base frequently leads to greater demand over time as more investors pour money into the enterprise, which raises pricing.

2. Core features of tokenomics

Mining and staking

Mining serves as the primary incentive for a decentralized network of computers to validate transactions on base layer blockchains like Ethereum 1.0 and Bitcoin. Blockchains like Tezos operate by rewarding those who perform a similar function through staking, which locks away a number of coins in a smart contract.

Yields

High yields are provided by decentralized financial platforms to entice users to purchase and stake tokens. Tokens are staked in liquidity pools, vast collections of cryptocurrency that drive services like lending systems and decentralized exchanges. New tokens are issued as payment for these yields.

Token burns

Token burning is the equivalent in the digital world of locking a safe full of cash without the access code. Ethereum began burning some of the tokens used as transaction fees in August 2021 as opposed to delivering them to miners.

Limited and unlimited supplies

The maximum supply of a token is determined by tokenomics. Despite having a yearly constraint on issuance, Ethereum has no upper limit. Projects using non-fungible tokens (NFTs) push the limits of scarcity; some collections may only print one NFT per work of art.

Token allocations and vesting periods

The distribution of tokens among stakeholder groups reveals both their influence on the project as a whole and whether the distribution of tokens is acceptable. This is a crucial element in aiding investors in appreciating the worth and potential of a project. The following groups of tokens will be distributed: team, foundation reserve, liquidity mining, seed/private/public sale, airdrop/retroactive, and additional distributions.

Investors that took part in the first token sale (ICO, IDO, or IEO) will receive a portion of the tokens they bought, but not all of them. The project will hold and pay for the remaining tokens for a set amount of time. Vesting refers to the holding, locking, and issuing of tokens.

3. Who decides?

The majority of tokenomics are built into the computer code of a single coin by its original creators.

An accompanying white paper, which is an in-depth document that describes what the proposed cryptocurrency will do as well as how it and any underlying technology would work, is sometimes used to outline a cryptocurrency's tokenomics prior to its release.

4. Examples of tokenomics in action

On the project website and whitepaper, the token of the Realbox blockchain crypto real estate platform is very explicit and completely updated. Realbox's 1,000,000,000 total utility tokens are allocated across the following categories: team, reserve, marketing, private sale, and public sale…

The procedure of owning and issuing tokens for the Realbox project is clearly shown in the image below for investors.

Because the cryptocurrency market changes so quickly, the best moment to release 100% of your tokens is between three and five years from now. Only 5 years have passed since the cryptocurrency sector became "Mainstream" in 2017, so far. As a result, it is clear that Realbox will be released over a period of up to three years, guaranteeing the team's continued involvement with the project. 

Why is tokenomics important?

Micro-economies can be established through projects using blockchain technology. They need to determine how tokens should function within their ecosystem in order to become self-sustaining.

When it comes to tokens, there shouldn't be a "one size fits all" mentality. A broad range of use cases and solutions have been made possible by blockchain. Teams can use tokenomics to develop new models or modify old ones to fit the goals of a project. If done correctly, this can produce a platform that is highly functional and stable.

With the help of the aforementioned post, hopefully everyone now has relevant knowledge to aid in the investment process. Please sign up and register Realbox groups and channels at https://linktr.ee/RealboxOfficial if you want to learn more helpful information.



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