Hi!

Looking for the next 100x return?

The key to your search lies in Tokenomics.

It might sound complex, but it's just the science and strategy behind a cryptocurrency's operational structure.

For anyone considering diving into crypto, understanding Tokenomics is as crucial as understanding how to read a company's balance sheet in traditional finance.

We will examine the winning Tokenomics formula for successful projects and what pitfalls to pay attention to, so you don’t become exit liquidity with your next investment.

Tip: The content of this post is evergreen. That means I will continuously update the content with new information relevant to your analysis. I recommend that you bookmark this post for reference. If you are reading this a few days after it was published, I recommend reading the updated web version.

Let’s start with the most important part of the Tokenomics formula: Supply-Side Tokenomics.

The team and devs are responsible for this part of the token supply.

It’s a significant aspect of project development, as it can make or break a project.

A team that does a bad job designing their Tokenomics will have a chart that looks like this after a year… ☠️

It's definitely not what you want your investment to look like.

That’s why you need to master Tokenomics.

Let’s start with the key terminologies:

Use platforms like coingecko or Coinmarketcap for this data.

You first need to consider the gap between supply and total supply.

A large gap means many tokens can still hit the market and drastically impact the price.

Emissions play a vital role. Rapid supply growth can dent token value unless complemented by demand surges.

Sources of emission include staking rewards, airdrops, and token releases.

Here’s an example with $XRP. The max supply is 2x higher than the circulating supply.

During the bullrun max supply and fully diluted valuation (fdv) is considered a meme, meaning no one really cares about it and shitcoins can go up even if their full valuation doesn’t make sense.

What you should do is make sure you keep an eye on any unlocks. We will cover that below.

The easiest way to check the token distribution is by going to coingecko and searching for the token you are interested in analyzing.

When you do that, you will get a breakdown of the Tokenomics for that project.

When looking at the Avalanche token, you want to look at the team, advisors, and early investors’ token allocation.

Ideal Tokenomics:

Token Vesting: From Lock to Launch

Let’s continue analyzing the Avax Tokenomics and look at vesting.

When looking at the Avalanche token, I want to know who got in at what price, what % of tokens early investors got, and what the vesting schedule looks like.

The most important part is the vesting schedule for early investors, as they will most likely dump their tokens as soon as they are unlocked.

If it’s a new project with a vesting schedule a few years out, there is nothing to worry about.

On the same tokenomics page we were before you can scroll down to see the vesting cliffs, the dates where tokens hit the markets.

You can check upcoming unlocks on defillama/unlocks

Token transaction volume is a reliable indicator of a cryptocurrency's market capitalization authenticity, with a robust volume-to-market cap ratio indicating most likely real trading activity.

But be warned, wash trading happens a lot in the space. Many centralized exchanges trade wash by buying and selling to artificially increase trading volume.

Token Utility:

It's the main demand driver. Tokens must provide palpable benefits, like covering network costs or availing protocol access.

One of the biggest lessons I learned in 2021 is never to lock tokens for an extended period. In 99% of the cases, you are better off just keeping the token in your wallet and selling it if the price goes up.

Financial Incentives:

Perks for holding tokens can spur demand. Sustainable incentives, e.g., staking, are ideal.

What Fuels the Token Thirst: Demand Catalysts

Certain things can increase the demand for something, like holding on to it as an investment, thinking it has long-term value, having a strong group of supporters, and being useful in some way.

Every so often, when a group of people are really hyped, they can make others interested, too, even if the thing doesn't have a use-case. This is typically seen with meme coins.

How can you check the demand drivers?

Numerous other social media platforms, such as Reddit, YouTube, TikTok, and foreign sites, could generate significant demand.

Analyzing token holders, particularly large ones, is important to gain valuable investment insights into their motivations.

You also want to see if there is an uneven distribution of token holders. If there are too many insiders, the dump-risk for that token is high.

The easiest way to see the top holders of a token is by going onto dexscreener and clicking on the holders tab.

If you would like total, to be on the safe side, you can list the top holders and add them to cielo wallet tracker so that you know when they start selling.

This was my first post on Tokenomics. There is a lot more we can cover. In the next part, I will cover how to analyze Tokenomics for shitcoins and microcaps, as there is a lot of nuances there and very specific tools you can use.

Thanks for reading.

I will leave you with a Tokenomics checklist you can use.

Best,

Kierin