Main points
- Fully Diluted Valuation — Always check FDV, not just market cap. It shows true dilution
- Vesting Schedules — Large unlock events create massive selling pressure
- Inflation Rate — High emission = constant sell pressure on token
- Token Utility — Demand drivers matter more than supply mechanics
- Distribution — Avoid >20% to team/insiders, especially with short vesting
- Burn Mechanics — Real burns reduce supply; fake burns just move tokens
What is Tokenomics?
Tokenomics is the economic design of a cryptocurrency. It determines:
- How tokens are created — Mining, staking rewards, or pre-mint
- How tokens are distributed — Team, investors, community, treasury
- What creates demand — Utility, staking, governance, fees
- What controls supply — Inflation rate, burns, max supply
"Price is just supply and demand. Tokenomics determines both. Master tokenomics, master crypto investing."
— DeFi Researcher
Contrarian Take
Everyone's worried about Meta's metaverse spending. They should be. But what they miss is that Meta's AI advertising engine is so far ahead, they can burn $10B yearly on moonshots and still dominate.
Understanding Supply Metrics
Token Distribution
How tokens are allocated reveals project priorities and potential sell pressure:
- Team & Advisors 20%
- Community/Airdrop 20%
- Private Sale Investors 20%
- Ecosystem/Treasury 15%
- Staking Rewards 10%
- Public Sale 15%
Distribution Guidelines
Vesting Schedules & Unlocks
Vesting schedules determine when locked tokens become available for sale. Large unlock events create massive sell pressure:
Vesting Best Practices
- Cliff Period — 6-12 months where no tokens unlock. Good for alignment
- Linear Vesting — Monthly unlocks are better than large cliffs
- Total Duration — 3-4 year vesting is standard for team/VCs
- TGE Unlock — Less than 20% at Token Generation Event is healthy
Track Unlock Events
Use Token Terminal, Messari, or Dune Analytics to track upcoming unlocks. Major unlocks often precede price drops.
Token Utility: Demand Drivers
Supply mechanics are only half the equation. Token utility creates demand:
Gas/Transaction Fees
Token required to use the network. Every transaction = token demand. (ETH, SOL, AVAX)
Governance Rights
Vote on protocol changes, treasury spending, fee adjustments. (UNI, AAVE, MKR)
Staking Rewards
Stake to earn yield, secure network, or boost returns. Creates lock-up demand. (CRV, GMX)
Fee Sharing
Holders receive portion of protocol revenue. Real yield creates sustainable demand.
Burn Mechanisms
Fees burned = reduced supply. EIP-1559 burns ETH with every transaction.
Collateral/Insurance
Token used as collateral for borrowing or insurance. Creates structural demand.
Red Flags & Green Flags
🚩 Red Flags - Avoid These
✅ Green Flags - Look for These
Your Tokenomics Checklist
Good tokenomics don't guarantee success. But bad tokenomics almost guarantee failure.