Thread by @amrali0fx

#Week_1: #Tokenomics, Day 1: Tokenomics 101: The Basics of Evaluating Cryptocurrencies by @nateliason

Tokenomics is a term that describes everything about the mechanics of how the asset works,
Projects with well-designed tokenomics are much more likely to succeed, diving deep🧵

2- As any economy: It All Comes Down to Supply and Demand.
starting with the supply side as easier to understand,

Supply consists of Emissions, Inflation, and Distribution, neutralize and overlook the demand or utility here, just focus on the supply side

3- The questions you want to ask:
How many of these tokens exist right now?
How many will ever exist?
How quickly are new ones being released?

4 examples :
1-btc: There will only be 21m Btc, Roughly 19m exist, so 2m more to be released over the next 120 years.

4- so you shouldn’t expect any serious inflationary pressure bringing down the value of the coin.
good supply model for the current moment,

2- Eth: The circulating supply is around 118m, and there’s no cap on how many Eth can exist.

5- But Ethereum’s net emissions were adjusted via a burn mechanism(EIP-1559) so that it would reach a stable supply, or potentially even be deflationary, resulting in between 100-120m tokens total. So we shouldn’t expect much inflationary pressure on Eth either. Good supply model

6- Dogecoin has no supply cap either, and it is currently inflating at around 5% per year. So of the three, we should expect inflationary tokenomics to erode the value of Doge more than Bitcoin or Ethereum.

The last thing you want to consider with supply is allocation -

7- Do few investors hold 25% of the supply which are going to be unlocked soon? Did the protocol give most of its tokens to the community? How fair does the distribution seem? Consider this before buying
Those are the main considerations for Supply. Now demand, the exciting part

8- Demand: ROI, Memes (belief/narrative), and Game Theory
ROI (Return on investment)= It’s how much income or cash flow the token is able to generate for you simply by holding it.

examples: 1* Eth staking (helping the protocol) gives around 5% per year,

9- 2* sushi, u get part of the protocol earnings (the fees generated from the platform transactions) around 10% per year, u can collateral them even and get a loan in stables and go farm those stables (we will get back to this in game theory)

10- @nateliason mentioned another form of ROI, "Rebasing" similar to a stock split, Olympus as an example, but i don't actually understand how can we count this as ROI form, hope he clarifies this point.
ROI is important because if a token has no intrinsic ROI or cashflows-

11- then it’s harder to justify holding it.
Or, you have to believe the "memes".
You can call it faith, conviction, belief or memes
Everything else in the tokenomics has been pretty measurable, but memes requires you to hop into the community and get a feel for it.

12- You shouldn't underestimate it, Belief in future value is one of the most powerful drivers of demand. Bitcoin has no cash flow, no staking. It just has the belief that it could be a long term store of value to rival gold. gamestop and wallstreet bets situation is an example.

13- The 3rd aspect which called game theory, is a part of ROI and Memes.
it is the additional elements in the tokenomics design that might help increase the demand for the token, the incentives mechanisms or touches to the protocol that helps with the demand section.

14- A good common example is Lockups, The protocol creates an incentive for locking your tokens in a contract, usually in the form of greater rewards. A classic example is Curve, similar to Sushi, you can lock your CRV tokens to earn a share of the protocol revenue (that's ROI) -

15- But the longer you lock your tokens for, up to 4 years, the greater your rewards (that's game theory).
In addition, the more tokens you have locked and the longer you have them locked for, the lower your fees when you use all the other parts of Curve (game theory/incentives).

16- This should give you a good initial foundation to evaluate any new project you come across. By reading the docs or whitepaper, you should get a good sense of how the supply is going to be managed, and what forces will drive demand for the token or cryptocurrency.

Credits goes to @nateliason , i hope he completes the tokenomics series and never stops
and here is a link to the full article which worth reading for sure every.to/almanack/token…