The rise of cryptocurrencies and the blockchain technology that underpins them has brought about a sea of change in our understanding of money, value, and investment. There are many areas of economics that cryptocurrencies have allowed us to explore and develop. One such area is tokenomics – the study of tokens (or cryptocurrencies), their economic models, and how they relate to one another in terms of value creation.
Understanding Tokenomics
Tokenomics is the study of the economics of tokens. If you’ve heard the term before, it’s likely about crypto investing. Though tokenomics is a new area of economic research, it has been gaining popularity as an effective way to understand the value of a token and how it can be used in practice.
Tokenomics is a way to understand why some tokens are more valuable than others at any given time. It analyzes supply and demand factors that affect a token’s price over time, enabling investors to make smarter investment decisions and avoid scams like pump-and-dumps (P&Ds).
By calculating these factors for each coin or asset, you can see which ones offer better potential for growth than others—or if they don’t even have room left for growth because they’re already too large (which would make them risky).
ICOs
Initial coin offerings (ICOs) are a new way of raising funds for a cryptocurrency project. The developer team releases a whitepaper describing the project; an ICO contract is written and published on the Ethereum blockchain. Investors send ether to the project’s address in exchange for newly created tokens.
Some ICOs will offer other perks to those holding these new tokens, such as token or NFT airdrops, exchange fee discounts, and even access to exclusive online groups like DAOs. ICOs are a great way to get free tokens and diversify your portfolio. However, be sure you familiarize yourself with the whitepaper of the crypto before you begin any investment in a new cryptocurrency.
Market Cap
When you see a cryptocurrency’s price, that’s just the price of one token. But if you multiply that by the number of tokens in circulation, you’ll get its market cap (or total value). So when investing in Ether, the ETH price at any moment will be a factor of the total number of Ether coins in circulation at that time.
The market cap is what investors care about when they look at your token – because it tells them how much money has been invested so far in your project.
Now that you know how to calculate a cryptocurrency’s market cap let’s look at what determines its price. The price of cryptocurrency is like any other asset: it goes up and down in value based on supply and demand. In the case of cryptocurrencies, the demand comes from people who want to use them to buy goods or services.
Tokenomics is a new area of economic research. It is essential to understand how tokenomics works to make better investment decisions. With a strong understanding of tokenomics, you can better speculate about specific cryptocurrencies’ long-term success and sustainability. You can learn more about tokenomics and ICOs through the FTX website, where there are tons of free resources for beginners and experienced traders alike.
