Tokenomics
Tokenomics describes a token's supply, distribution, and unlock schedule. Skip this, and you often buy into a structure working systematically against you.
Three questions decide almost everything. How many tokens exist in total? How many are already circulating? And who holds the rest?
The most common trap is unlock schedules. Founders and early investors get large allocations that only unlock gradually. Each unlock increases supply and tends to weigh on the price.
So watch the gap between circulating market cap and fully diluted market cap. If only ten percent is circulating, the number on the price page can show a tenth of the real picture.
Second point: what's the token actually needed for? If a project would work fine without its own token, then the token isn't part of the solution, it's part of the fundraising.
A distinction is needed between total supply, maximum supply, and circulating supply. Fully diluted valuation equals price times maximum supply and often sits a multiple above the reported market cap for young projects. The gap corresponds to future dilution that's already contractually set.
Unlock schedules are usually publicly documented. What matters is the share held by founders and early investors, the lockup periods, and the monthly unlock amount relative to average trading volume. Where scheduled unlocks exceed a significant share of typical volume, structural selling pressure arises regardless of how the project itself is doing.
On the demand side, check whether genuine usage necessity exists or whether the token functions purely as a speculative object. Mechanisms like buybacks or burns reduce supply, but only carry value insofar as they're backed by actual earnings. A burn financed from newly issued tokens is a zero-sum act with signaling value only.
Summary
- Circulating supply and maximum supply can differ hugely.
- Unlock schedules create predictable selling pressure.
- If the project would work without the token, it's there for fundraising.
Did you get it?
What is fully diluted valuation?
Price times maximum supply. For young projects, it often sits well above the reported market cap.
Why do unlock schedules matter?
Because they create predictable selling pressure, regardless of the project's progress.
When does a token burn actually carry value?
Only if it's backed by real earnings and isn't financed from newly issued tokens.
Related
- Checking a whitepaperStage 3
- Reading a balance sheetStage 3
- Fundamental vs. technical analysisStage 3