T for Tokenomics

Eighteenth edition of Web3 Alphabet

Tokenomics is essentially the way a project functions, how it distributes tokens, how is the token price decided etc.

Investors need it to understand the potential value of a blockchain project. Somewhat similar to how one tries to understand a company before buying its shares.

In the world of web3, future value of the project (and its native token/crypto) depends on factors like the distribution and allocation of tokens, the supply of tokens, the market capitalisation of tokens, the token model, and price stability.

All these factors combined make the tokenomics of a blockchain project. For example, let’s look at the tokenomics of Ethereum. It includes two participants: users and validators.

Users can either be developers or people who send tokens on the Ethereum network. Whereas validators are miners who validate transactions on the network and earn rewards from newly created blocks and gas fees.

Moving to the tokenomics of an Indian project, Polygon.

It has a native token called MATIC, which is used for two main reasons: to pay the gas fees on all network transactions and to stake validator nodes to earn rewards. There are 10 billion Matic tokens that were issued in April 2019, and about 8 billion of them were in circulation as of July 2022.

That’s all from T for Tokenomics. If you recall any other Web3 terms starting from the letter T, please leave a comment and I will include them in later editions. 

Until next time!