Tokenomics

Tokenomics is the design and study of the economic system around a digital token in a blockchain or decentralized network. It includes supply mechanics, distribution, utility, governance, and incentives, and how these elements affect user behavior, network security, liquidity, and sustainability.

Supply and issuance: tokens can be fixed, capped, or inflationary. Issuance occurs via minting, mining, staking rewards, or airdrops; burning and vesting can reduce or delay circulating supply. Allocation to founders, teams, investors, and communities shapes incentives and dilution.

Utility and demand: tokens may serve as a medium of exchange, collateral, or payment for fees; they may grant governance rights or access to services and staking yields. Demand comes from network activity, usefulness, liquidity, and participation opportunities.

Governance and incentives: many designs include on-chain governance, allowing holders to vote on upgrades or parameters. Incentives reward validators, liquidity providers, developers, or users, aligning actions with protocol goals while deterring harmful behavior.

Monetary policy and market dynamics: inflation or deflation through minting or burning; burn rates and subsidy schedules affect scarcity. Velocity, liquidity, and external market conditions interact with utility to influence price, risk, and capital allocation.

Metrics and risk: key measures include circulating supply, total supply, market cap, velocity, burn rate, staking participation, and dilution. Risks include centralization, security flaws, regulatory changes, and misaligned incentives.

Lifecycle and design: tokenomics design evolves through bootstrap, growth, and maturity phases, balancing incentives and governance with long-term sustainability. Different networks adopt varied models based on use case.