tokenomics

Tokenomics, also known as token economics, is the study of parameters that determine the characteristics of cryptocurrencies (cryptos) or cryptographic tokens to create economic value. Both cryptocurrency and tokens are the subclasses of digital assets that use the technology of cryptography. Crypto is the native currency of a blockchain, and it is developed directly by the blockchain protocol. Tokens are created through a blockchain-based organization or application. For example, Ether (ETH) is the native crypto of Ethereum, while Axie Infinity Shards (AXS), the governance tokens of the game Axie Infinity, lives on Ethereum, and users can use them to play games. In both cases, tokenomics acts as an incentive mechanism and monetary policy of the supply and demand of certain crypto or token. Tokenomics rules how and when a new crypto or token should be generated or removed from the system. Once the tokenomics is written into a smart contract, the system is automated.In the real-world economics system, the economy is subject to fluctuations like inflation and deflation. Central banks intervene through monetary policies. Tokenonomics can be thought of as an approach to implementing monetary policies and economic rules via automated smart contracts. On the blockchain, different projects may issue their own tokens with different tokenomics to complete their ecosystem for various purposes, such as fundraising and governance. Some common tokenomics models include the deflationary model, inflationary model, and dual-token model. For instance, before the very last Bitcoin is added to the Bitcoin pool, it is inflationary because as miners (people who find Bitcoin by using algorithms to solve mathematical puzzles) keep mining Bitcoins, the amount of Bitcoins increases and the purchasing power of each Bitcoin decrease. However, the tokenomics of Bitcoin has multiple mechanisms to lower the rate of inflation, such as making mathematical puzzles harder and harder to solve and allowing fewer and fewer miners to receive the coin.

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