What Is Tokenomics?

The law of supply and demand is on display every day in every market. Strong demand for a limited supply will push a price up. And an oversupply and weak demand will cause the price to sag. So how do you measure demand in a Crypto? Start by checking the average daily trading volume. Look for days where the number of units traded is much higher (or lower) than normal.

If the price rises sharply and the trading volume spikes well above average, that indicates demand. It means large investors and other institutional investors — who account for the bulk of all trading in the crypto market — are aggressively buying. And it's that strong institutional demand that fuels a crypto's big price move.

‍In which case, there are a number of factors to consider. Perhaps the most important is to understand how the digital currency will be used. Is there a clear link between usage of the platform or service being built and the asset? If there is, there is a strong chance that a growing service will require purchases and usage that ultimately helps to increase the price. If there is not, what can the token be used for?

‍Other important questions to answer include the following: 

• How many coins or tokens currently exist? 

• How many will exist in the future and when will they be created? 

• Who owns the coins? Are there some set aside to be released in the future to developers? 

• Is there any information to suggest that a large number of coins has been lost, burned, deleted or are somehow unusable?

‍
Tokenomics is also helpful as guidance to understand how much an asset might be worth in the future. For example, many people new to crypto will think something like, “If this coin becomes as valuable as Bitcoin, then one day…” while in reality it might never be possible. As an example, let’s think of two coins mentioned above, Bitcoin Cash and Tron. Bitcoin Cash has the same total supply as Bitcoin, so thinking that one may become as valuable as the other in time has some legitimacy — it is possible. However, with more than 100 billion Tron existing, for one coin to be valued in the thousands of dollars, Tron would need to become the most valuable business in the history of the world — how likely is that to happen?

‍While these questions may seem to require complex answers, they will provide an extra way to view cryptoassets and help to understand whether one asset is more likely to have a great future than another.