What is Tokenomics? Rules and basic concepts

This is a question that new investors have had to ask. Although it is a term used for a few years, thanks to the evolution of technology and the growth of blockchain, the concept has taken a new boom. 

Because of this, the doors to the world of possibilities have been opened. A new vision vital is emerging for the development of the crypto world. Nevertheless, before entering the new era, it is ideal to know the basics of it.

What is a token?

It is a unit of value generated by pieces of programming code based on cryptography and blockchains. These “tokens” are created by a private organization with several objectives, so you can:

  • Get a business model 
  • Facilitate the distribution of goods and profits among shareholders
  • Carry out Defi operations
  • Prove possessions or actions
  • Participate in online games

Among others. As for its value, it will start with the one its owners choose. However, if such a token begins to be demanded by large numbers of people, the cost will increase. 

Types of crypto tokens

According to their characteristics and uses, there are five kinds of tokens:

  • Security Token

They are those that function as an investment contract, guarantee of a property, or as a share of a company. People who decide to invest in them do so to see short- or long-term profits.

  • Currency Token

They are also called cryptocurrencies. Such tokens are the most common. This is because they can replace traditional money in some transactions. However, there are certain differences between a token and a cryptocurrency. 

  • Utility Token

They are the ones that function as a way of access to some services. That is, these tokens cannot be used to generate investments but as a unit of account for a crypto community or project. 

  • Community Token

They are those that are used within some communities, for instance, in play-to-earn games or within some metaverse.

  • ‍Asset Token

They are those that represent real-world objects and are used for the purchase of tangible objects like gold, cattle, property, among others.

How does tokenomics work? Definition and objectives of tokenomics

Tokenomics is a compound word between token and economy so, its meaning itself is “economy of a token”. In contrast, a token can be both tangible and non-tangible, and it can represent: 

  • Actions 
  • Real money
  • Objects 
  • Others

Now, as for its objective, the main one would be to “seek the creation of an economic ecosystem supported by tokens.” Simply put, tokenomics works as a means to:

  • Moving objects from the real world to the virtual world by adding a type of value
  • Decentralized control of them

Because of this, tokenomics is recognized for enabling the creation of self-sufficient economic systems.

Crypto Tokenomics: Key Metrics and Factors to Consider

There are some key factors and metrics that must be well-thought-out when talking about the tokenomics impact in the crypto ecosystem. For example:

  • The community

The economy of a token does not generate profits itself. The presence of a loyal community is really important. They will support the principles and goals of the project is as or more important than the creation of the same token.

  • Distribution

The spreading of the token among its participants. This will boost the economy and enable the network that supports the token by growing the community.

  • Price stability

It is one of the most difficult things to do. If you want to achieve a stable economy the ideal is to work on it.

  • Governance

It denotes the rules established in the development and maintenance of the network. Although most use decentralized governance, this can change depending on the project.

  • Usefulness

The more useful it is, the greater its value. For example, a project that brings value to the real world will be one that will thrive.

How important is the economics of the game?

It is vital since it is responsible for analyzing and making the relevant decisions. so that one or more individuals achieve success. In short, it focuses on the analysis of problems based on mathematical theories. Predicts the behavior and influence that decisions will have. 

Cryptocurrency Investing: why is it important to understand tokenomics?

Because this is the one who will tell you if it is worth investing. That is, by studying tokenomics you can analyze whether or not the value of the token will increase in the future by studying tokenomics. 

Before buying any token you should analyze for what purpose and where it will be used. Some answers can also be achieved by understanding tokenomics.