If you’re an investor or spend lots of time on the internet, you are probably a bit familiar with cryptocurrencies and their impact on the digital world. Today, the NFT marketplace and crypto exchanges are buzzing with users eager to buy, sell, and trade crypto. Tokenomics has to do with the way cryptocurrencies are designed, and the rules and regulations around each new token developed. Cryptocurrencies are unique in that they can be designed in many different ways to benefit the coin holders. Here are some basics of tokenomics and what to look for when making your next crypto investment.
New Tokens
If you’re an investor looking to diversify your digital portfolio, investing in various cryptocurrencies is a great way to diversify your investments. Each new token is designed to incentivize users to invest, hold, and participate in the currency through exchanges. You can learn why and how the token was designed through its whitepapers. Here are a few aspects of tokens to look for when deciding which currency to invest in.
Burn & Supply
The number of tokens on the market will impact the overall value of each token. Traditional supply and demand rules are in effect within the crypto world as well, so selecting crypto with regulation features built-in is critical. Some cryptos will ‘burn’ a certain number of coins regularly to maintain the price of certain currencies. Burning mechanisms can help regulate the cost and availability of specific cryptos. Another factor to consider is the supply of these coins and whether it is limited or unlimited. Some cryptocurrencies are capped at a particular number of coins ever to be minted, while others do not have such limits. Regulations on the number of each coin that can exist help maintain value and scarcity, while unregulated coin caps can continue to encourage minting.
Long-term Investment Options
Certain coins will be built on proof-of-stake models, while others will be based on proof-of-work models. If you invest in a proof-of-stake model, you have the opportunity to invest your crypto long-term and generate rewards by entering a stake pool. Proof of stake models allows coin holders to use their personal machines as nodes on the blockchain that verify blocks of transactions every several days. Each node is randomly selected to verify a block, and if they successfully verify the block in time, rewards are distributed to the node and everyone who has coins staked in that pool. The more coins staked in a pool, the higher the chance of that node being selected to verify blocks.
If your coin does not run off a proof-of-stake, you can still generate rewards by yield-farming or liquidity farming. Liquidity farming allows coin holders to lend out their coins to borrowers in return for rewards in fees or new coins. Some tokens will even reward holders just for holding the coin, these are called airdrops.
Other Benefits
New tokens such as the FTT token provide many benefits to new users. FTT benefits are exciting as this token was designed to be the backbone of the FTX platform. FTT offers users discounts on trading fees and weekly airdrops of SRM to encourage users to trade on the FTX Serum exchange. Exchanges like FTX that offer tokens and advantages for holding and trading are highly beneficial for new investors and those looking to control various crypto investments from a single exchange. The tokenomics of FTT will also allow holders to help govern the future of the cryptocurrency as more and more coins are minted.
Understanding the basics of tokenomics and how to learn about each crypto’s features can seriously benefit any investor. New tokens are designed to benefit early investors and those who hold the coin. Start investing in your favorite crypto project today.
