What is tokenomics? Tokenomics contains two words; tokens and economics. It refers to the value of a token that can make investors want to develop an ecosystem around the underlying or internal project of that token. It studies how cryptocurrencies impact the broader ecosystem right from the creation of a coin to its management.
Tokenomics is a massive subject that has a lot of components which are:
The business model of the project
One of the things put into consideration with tokens is its business model, and how it is going to work to bring back profits. For a token to be successful, it has to have a robust business model to make money with.
For instance, cryptocurrencies such as bitcoin are only useful in payment purposes; therefore, they don’t need a complex business model. On the other hand, decentralized tokens that aim to be more than paying systems must have a sturdy business model.
Branding and public relations include the most critical components of tokenomics. A token project has to be backed up by a community of users. No matter the quality of a token or how big it sounds, without marketing to build the sales and consumer engagement, it is bound to slug.
Many crypto projects tend to focus their energy on building the token and forget the community. While it is still advantageous to build more on the product, ensure that someone in the team regularly interacts with the users.
It is vital to offer attention to the potential community as successful tokens have the most active buyers.
The legal requirements
The project has to have a legal team that is supposed to cater to its legal compliance. Before you set out on a token scheme, ensure that the project you have interest in is legally compliant with that country’s regulations. It is advisable to seek a lawyer such as Christian Ellul for legal advice on tokenomics.
For instance, following the massive ICOs raised in 2017, 2018, they came under scrutiny on legal matters through different governing bodies. It means that as much as the crypto space is unregulated, it is crucial to lawyer up and maintain judicial transparency as much as possible. To the project founders, it also builds confidence with the users as they have an assurance of legal backing in the project they are investing in.
Substantial utility means that the project has to contribute to the real-world utility or be of value to the real world. If it is bringing value to the market, it is a worthy investment.
For example, if the project’s platform depends entirely on the token, it has real-world utility.
There are different categories of tokens, and their structure determines how well it will fit into the market.
An example is an original chain and forked chain tokens. Bitcoin and etherum are instances of the original chain, while Litecoin and Bitcoin cash are forked chain tokens as they have been forked off by the original chain protocol.
While tokenomics is a broad subject, gaining some insight on its various components is a great start.