With new coins popping up on the cryptoasset market every day, it can be difficult to distinguish which are actually going to make it big and which are just fly by nights. That’s where token economics comes in. Having a basic understanding of token economics, and thereby knowing what a good token structure actually looks like, can help you stay up to date with the changes in the cryptosphere.
We’ll be looking into everything you need to know about token economics: what token economics actually is, and how to figure out what a good token structure is.
What is Token Economics?
Token economics, also known as tokenomics, is the study of a new type of economy that has emerged as a result of the cryptoasset revolution – the new economy being the design of a blockchain ecosystem. Each blockchain ecosystem differs, but token economics acts as a set of rules and methodologies that guide the building of a successful blockchain ecosystem and token.
In this new economy, tokens function as a digital asset – a way to assign value to projects and help fundraise startups and projects. Token economics explains token usage and token behaviour, as well as token supply, application and validation. Token economics is incredibly useful for ICOs (Initial Coin Investments) as it helps you to determine the value and type of usage that any new token may have.
So, what is token economics? In short, it’s the study of blockchain ecosystems and the tokenization of ecosystems.[embedded content]
What is a good token structure?
As you probably know, a token is a digital asset that can be divided up into different categories. Tokens can be utility/security and fungible/non-fungible, but what does that mean, and how does that relate to a good token structure?
A utility token is a digital asset that grants its holders access to products and services on a platform, such as Ethereum. On the contrast, a security token, like Bitcoin, has value in that it is an external, tangible asset that holds a variety of different uses for those that own it, for example, it may entitle the owner to a share in profits. A token may also be fungible or non-fungible. Fungible tokens can be divided into smaller units (fractions of the whole coin). One example of a fungible token would be Bitcoin, made up by 100 million Satoshis. While a non-fungible token is not interchangeable and cannot be divided up.
So, what does it mean for a token to have good token structure?
- Possibility for the token to increase in usage
- Scalability of usage
- Not affected by inflation
- Utility within a blockchain ecosystem
Token economics might seem like a difficult concept to wrap your head around at first, but it’s actually fairly simple. All you need to know is that token economics is the study of how blockchains work, how their ecosystems function, and how tokens operate within that system.
A good token structure isn’t based on whether or not the token in question is a utility or security token, or if it’s fungible or non-fungible. Rather, you should look at how the token is affected by inflation, its utility, its value, its usage scalability, and how its usage is growing. Token economics is an incredibly useful thing to understand when you’re trading cryptoassets, so feel free to refer back to our guide on everything you need to know about token economics at any point.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.
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