In contrast to blockchain-oriented developments, it seems that the concept of tokenomics, which refers to the correlation between terms ‘token’ and ‘economics’, is growing important for cryptocurrency projects in terms of funding and community creation. Experts believe that tokenomics carries the potential to support the creation of a cryptocurrency-based economy, through incentivisation and utility generation for users.
Insights from a tokenomics report published by ConsenSys, a blockchain software technology company, stated that major exchange tokens linked to East Asia, such as Binance’s token (BNB), Huobi’s token (HT), FTX’s token (FTT) and OKEx’s token (OKB), indicate that exchanges in the region are more likely to take regulatory risk in distributing their own tokens versus western exchanges. Reportedly, Binance and FTX have seen the most amount of user growth, on account of large referral networks. “Tokenomics, being a blend of ‘token’ and economics’, decides distribution in the cryptocurrency economy. As the use of blockchain continues to grow and decentralised finance (DeFi) projects gain popularity, the use of tokenomics will develop,” Prashant Kumar, founder and CEO, weTrade, a cryptocurrency-based platform, told FE Blockchain.
According to market research, tokenomics is believed to have helped to determine the maximum supply of a token, and for cryptocurrency projects to permit the detailed distribution of tokens. As stated by Learn Crypto, an education platform, the importance of Bitcoin’s fixed supply schedule to perceived value shouldn’t be overstated. In January, 2022, tokenomics-based data helped determine that 90% of total Bitcoin supply was mined and the maximum supply was expected to be approximately 2,140, at the point when only miners were supposed to receive the transaction fees.
“Many tokens are so-called utility tokens, which means they carry a specific purpose within a specific ecosystem. Game Theory in tokenomics assumes that traders are rational actors and, given certain incentives, will eventually make an optimal choice. Often a certain number of tokens remain reserved for venture capitalists or developers, which can be sold only after a certain period of time. I believe that the project team will have a system implemented where tokens are distributed in a way to minimise the impact on the token’s circulating supply and price,” Sathvik Vishwanath, co-founder and CEO, Unocoin, a cryptocurrency exchange, highlighted.
Reportedly, cryptocurrencies such as Bitcoin, Ethereum, among others, use tokenomics-based mechanisms for running multiple processes. In terms of popularity, non-fungible token (NFTs) are considered important. Additionally, infrastructure-based platform tokens, ownership-oriented security tokens, utility tokens, among others, are also expected to grow for sufficing users’ needs. It is believed that layer-1 blockchain-based tokens are transacted between users and businesses, to benefit decentralised projects.
Moreover, market predictions show that tokenomics is expected to play an important role in determining one’s investment techniques, along with enhancement in the performance of tokens and value of investments. However, unlike fiat currency, experts believe that since tokenomic rules are implemented through code, they are difficult to change and differ for separate use cases. According to ZebPay, a cryptocurrency exchange, tokenomics can help with the creation of new models for teams to work with what the project aims to achieve, or modify existing technical architectures to enhance its possibilities.
“As tokenomics is considered one of the factors in determining how a token will perform against the US dollar, Bitcoin or altcoins, the concept is expected to be in demand always, as it helps one to evaluate whether the developers have come up with innovative ideas regarding the token allocation or they have simply implemented the prevailing ideas. A regulatory framework can be beneficial to safeguard investors, maintain financial stability, and promote innovation to enhance the appeal of tokenisation,” Gaurav Dahake, co-founder and CEO, Bitbns, a cryptocurrency exchange, noted.