What is Tokenomics?

What is Tokenomics?

The term tokenomics comprises two words token and economics. So, tokenomics is the study of the economics of crypto tokens and involves the understanding of the demand and supply characteristics of

cryptocurrency. Tokenomics helps to get a better understanding of the quality, production, and distribution of crypto tokens.

The whitepaper of any project clearly explains the tokenomics of its token and helps the consumers to make an informed decision by studying the objective, functionality, allocation policies, and related information of the particular token.

But what are crypto tokens? To understand the tokenomics of any cryptocurrency, it is important to first have a clear understanding of its building blocks- the tokens.

WHAT ARE TOKENS?

A crypto token is a digital unit of a cryptocurrency that has a certain value. Investors can use this as a specific asset, for investment or to represent any specific use on the blockchain.

To study more about tokenomics, we must understand the various types of tokens.

According to one type of classification, tokens can be of two types, layer 1 tokens, and layer 2 tokens.

1. Layer 1 tokens

Layer 1 tokens represent a particular blockchain. Investors store and invest using these tokens.

2. Layer 2 tokens

Decentralized applications in a particular network are scaled with the help of layer 2 tokens.

Another type of classification divides the tokens into the following 2 types, fungible tokens, and nonfungible tokens.

1. Fungible tokens

Fungible tokens can be interchanged with others of the same kind as they have the same value and are replaceable with each other.

2. Non Fungible tokens

Non-fungible tokens are unique as such that they don’t share the same value. Tokenization of prized assets such as furniture, artwork, real estate, etc has made NFTs very popular in recent times especially with high-profile NFT auctions.

Apart from these two types, we can classify tokens into two more categories based on usage- Security tokens and Utility tokens.

1. Security tokens

These are digital investment contracts and represent the ownership for a fraction of assets. Only those tokens that can pass a comprehensive process of contract verification known as the Howey Test, earn the title of a security token.

2. Utility tokens

Utility tokens are useful for financing a network and are more well known. They are supplied through an Initial Coin Offering.

FACTORS INCLUDED IN TOKENOMICS

We must consider all those factors that even remotely affect the value of a crypto token when studying its tokenomics. Therefore, it is important to understand these factors before diving into the world of crypto tokens.

1. Allocation and Distribution of tokens

We can decide the worth of a crypto token by checking the distribution process of the token. There are generally two ways by which tokens are generated- by pre-mining or by a fair launch.

• Pre-mining is when a number of tokens are generated

and distributed before the official launch of the product. The new

tokens are sold to prospective buyers, project developers, team members, and early investors.

• On the contrary, a fair launch is when the cryptocurrency is mined, earned, governed, and owned by the entire community. Hence, there is no early access and no concept of private allocation before the product becomes public.

So, if the project is distributing its tokens to as many applicants as possible, it can be assumed that the project is a genuine one and cares about future development.

2. The supply of token

To study the tokenomics of any cryptocurrency it is important to study the supply of tokens. There are three types of supply of crypto tokens.

Total supply is the total number of tokens that exist at present minus the tokens that were burnt.

Circulating supply is the number of tokens that have been allotted and are in circulation so far.

Max supply is the most number of tokens that can ever be generated.

Keeping a watchful eye on the supply of tokens helps predict its future. If the circulating supply increases, the value of the token can go up. However, if too many tokens are released at once, its value can go down.

3. Market capitalization of token

The market capitalization of a token is used to determine the popularity of a token. It shows the entire amount of funds that have been invested in any project. The higher the coin’s market capitalization and the lower it's circulating supply, the more valuable the token will be.

4. Price stability

Price stability also has important implications on the tokenomics of any project. As cryptocurrencies are volatile by nature, they can put investors in a difficult position. Therefore, investors should make sure that the projects that they are investing in are ready to deal with the fluctuations of the cryptocurrency. They can do this by making sure there are enough tokens to meet the supply levels. This, consequently, stabilizes the price of tokens.

CAIZCOIN TOKENS

Caizcoin tokens start at the value of 0.125$. A total number of 999,999,999 tokens are available in an initial private token sale. Buyers can purchase these tokens using fiat currency, bitcoin, ether, etc. Islam compliant blockchain is the basis of Caizcoin and this coin will serve as a valid mode of payment.

Final notes

To make a considerable investment in any cryptocurrency, we must first completely study the project, its value, supply, demand, and prospects. Tokenomics helps us concisely gain this information, therefore helping us make an informed decision.

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CAIZCOIN

CAIZCOIN

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World’s First Islam Compliant Cryptocurrency. Envisioned to be the bridge between centralized and decentralized finance.