Key Takeaways
- Tokenomics is a field that analyzes typical elements found in economics, such as supply, demand, and utility, and applies it to cryptocurrencies.
- Investors can easily overestimate supply and demand and underestimate how narratives and memes may also impact a token’s price.
- Phemex, one of the leading cryptocurrency exchanges in the industry, does extensive tokenomics analysis before approving tokens for listing.
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When investing in crypto, it’s important to understand tokenomics to make informed decisions and avoid getting rekt.
Tokenomics comes from combining the words token and economics and is a field that studies the factors that drive demand for tokens. One has to consider factors such as supply and demand, incentive mechanisms, value accrual, and investor behavior when analyzing a project’s tokenomics.
An Analysis of Supply and Demand
The dynamics between supply and demand are the first things to analyze when a project issues a new token.
An excess of supply can negatively affect an asset’s value. We can find examples in fiat currencies that have suffered from hyperinflation and excessive printing (e.g., the Zimbabwean dollar or the Venezuelan Bolivar).
The same happens in crypto. You wouldn’t feel great if the running supply of the token you’ve just bought is only 30%. That means the supply has yet to increase by another 70%, potentially diluting the price and losing value.
In this context, it’s important to know…
