- Introduction
- 1. Airdrop
- 2. Asset Backed Model
- 3. Automated Market Maker
- 4. Bounty
- 5. Burning
- 6. Circulating Supply
- 7. Coin
- 8. Consensus Algorithm
- 9. Deflationary Method
- 10. ERC-721
- 11. Farming
- 12. Fully Diluted Market Cap
- 13. Gas
- 14. Governance Token
- 15. HODL
- 16. Halving
- 17. Hard Cap
- 18. Layer 1
- 19. Layer 2
- 20. Liquidity Pool
- 21. Liquidity Provider
- 22. Liquidity Taker
- 23. Market Capitalization
- 24. Maximum Supply
- 25. Mining
- 26. Minting
- 27. NFT
- 28. P2P
- 29. Pre-mining
- 30. Proof of Burn
- 31. Proof of Stake
- 32. Proof of Work
- 33. Pump and dump scheme
- 34. Reward Token
- 35. Rug Pull
- 36. Soft Cap
- 37. Staking
- 38. Swap
- 39. Token
- 40. Token Allocation
- 41. Token Distribution
- 42. Token Issuance
- 43. Token Economics
- 44. Token Listing Price
- 45. Token Velocity
- 46. Token Vesting
- 47. Total Supply
- 48. Unlock Schedule
- 49. Ve Tokens
- 50. Wallet
- 51. Whale
- On the road to expertise
Terms You Should Know In Tokenomics 101

- Introduction
- 1. Airdrop
- 2. Asset Backed Model
- 3. Automated Market Maker
- 4. Bounty
- 5. Burning
- 6. Circulating Supply
- 7. Coin
- 8. Consensus Algorithm
- 9. Deflationary Method
- 10. ERC-721
- 11. Farming
- 12. Fully Diluted Market Cap
- 13. Gas
- 14. Governance Token
- 15. HODL
- 16. Halving
- 17. Hard Cap
- 18. Layer 1
- 19. Layer 2
- 20. Liquidity Pool
- 21. Liquidity Provider
- 22. Liquidity Taker
- 23. Market Capitalization
- 24. Maximum Supply
- 25. Mining
- 26. Minting
- 27. NFT
- 28. P2P
- 29. Pre-mining
- 30. Proof of Burn
- 31. Proof of Stake
- 32. Proof of Work
- 33. Pump and dump scheme
- 34. Reward Token
- 35. Rug Pull
- 36. Soft Cap
- 37. Staking
- 38. Swap
- 39. Token
- 40. Token Allocation
- 41. Token Distribution
- 42. Token Issuance
- 43. Token Economics
- 44. Token Listing Price
- 45. Token Velocity
- 46. Token Vesting
- 47. Total Supply
- 48. Unlock Schedule
- 49. Ve Tokens
- 50. Wallet
- 51. Whale
- On the road to expertise
Introduction
If you are a newbie in the Tokenomics space, you
probably want to know where to start?
In this article, I have compiled the most important
terms that are related to Tokenomics for you to flaunt in your next meeting. If
you can’t speak the language you’re going to have a hard time getting around.
1. Airdrop
An airdrop is a marketing strategy used by blockchain
based projects to distribute free tokens en masse to their communities in a bid
to encourage adoption. This will be a part of a broader promotional initiative
and a limited time event. It generates buzz and interest in particular
platforms or networks and a way of promotion. It is a way of rewarding
individuals who are participating in or supporting the platform in some way.
Individuals who are eligible for an airdrop will need to take certain steps,
such as holding a certain number of tokens or completing certain tasks, in
order to receive the airdropped tokens.
2. Asset
Backed Model
It is a way of designing and implementing the use of
tokens within a larger system or platform. In this model, the tokens represent
a specific asset or set of assets within the system, and it can be bought,
sold, or traded based on the value of those assets. The value of the tokens is
directly tied to the value of the underlying assets, that include things like
physical goods, services, or other forms of value within the system. It is
often used in cases where the goal is to create a decentralized market for a
particular asset or set of assets, and to allow for the seamless and transparent
exchange of those assets among users of the system.
3. Automated
Market Maker
Automated market makers are autonomous trading
mechanisms that eliminate the need for centralised exchanges and related
market-making techniques. It is a system that automatically facilitates buy and
sell orders on decentralised exchange. It use mathematical formulas and rules
to automatically set the prices for tokens based on supply and demand, and to
match buyers and sellers in a way that ensures that trades can be made efficiently
and fairly.
4. Bounty
Bounty is a reward offered to individuals or groups who perform specific
tasks or achieve certain objectives within a particular platform or network.
These tasks or objectives can vary widely, but they often involve promoting the
platform or network, finding and reporting bugs or vulnerabilities, or
contributing to the development or growth of the platform in some way. These
are typically paid in the form of the platform's native tokens, and they can be
a useful way of incentivizing and rewarding participation within the platform
or network.
5. Burning
“Burning” crypto means permanently removing a number of tokens
from circulation. This is typically done by transferring the tokens in question
to a burn address or eater address, i.e. a wallet from which they cannot ever be retrieved. This is
often described as destroying tokens. It can be done for a variety of reasons,
such as to reduce the overall supply of tokens and increase their value, to
demonstrate the project's commitment to maintaining the value of their tokens,
or to reward token holders.
6. Circulating
Supply
Circulating supply refers to the total number of tokens that are
currently in circulation and available for trading or use on a particular
platform or network. This number is an important metric when it comes to
evaluating the potential value of a token, as it can help to indicate the
relative scarcity of the token and its potential demand. It can change over
time as new tokens are created or destroyed, and it is often used in
conjunction with other metrics, such as the total supply and market
capitalization, to evaluate the overall health and potential value of a token.
Circulating supply = Total number of tokens created (-) No. of tokens
permanently destroyed or not available
for trading.
7. Coin
Coin is used to refer to a type of digital asset that is created and
issued on a blockchain-based platform. These are typically used as a means of
exchange within a specific blockchain network, and it can be traded for other
tokens or cryptocurrencies. They have their own independent blockchain as
against tokens are built on top of existing blockchain platforms. Coins are an
important part of the token economy, as they provide the underlying
infrastructure for many decentralized applications and platforms.
8. Consensus
Algorithm
Consensus algorithm is a mathematical process or set of rules that is
used to achieve consensus among the members of a distributed network. It is
used to ensure that all members of the network agree on the current state of
the network and on any changes that need to be made, and they can help to
prevent conflicts and ensure the integrity of the network. It helps to ensure
the security and integrity of any transactions that take place on the network.
Different platforms and networks may use different types of consensus
algorithms, and the specific algorithm used can have a significant impact on
the overall tokenomics of the platform.
9. Deflationary
Method
A deflationary method is a way of designing and implementing the use of
tokens within a larger system or platform in such a way that the total supply
of tokens decreases over time. This can be achieved in a variety of ways, such
as by permanently destroying a certain number of tokens on a regular basis, or
by implementing a system that automatically reduces the supply of tokens based
on certain conditions or triggers. This can help to prevent inflation and
maintain the value of the tokens over time, and it can also incentivize holders
of the tokens to hold onto them rather than selling them.
10. ERC-721
ERC-721 is a technical standard used for non-fungible tokens on the
Ethereum blockchain. Unlike most cryptocurrencies, which are interchangeable
and identical to each other (i.e. they are "fungible"), non-fungible
tokens (NFTs) are unique and cannot be directly exchanged with each other in
the same way. ERC-721 is a set of rules and standards that ensures that NFTs on
the Ethereum blockchain can be easily exchanged and managed.
11. Farming
Farming is the practice of lending and staking your crypto assets to
earn higher returns. In Farming the assets are deposited into the platform’s
smart contract, which in turn allows borrowers to use these assets for various
DeFi activities. Borrowers pay an interest, while lenders receive interest.
This practice is similar to the concept of "staking" in the world of
cryptocurrencies, where users hold onto a certain number of tokens and receive
rewards for doing so. Farming is often used as a way of incentivizing users to
hold onto a particular token, and can help to create a more stable and liquid
market for the token. It is also sometimes used as a way of distributing new
tokens to users who are actively participating in a particular platform or
network.
12. Fully
Diluted Market Cap
It is the total value of the token at today’s price if all tokens are in
circulation. This helps the investors to assess if the current price of the
token is sustainable into the future or if it is currently selling above its
deal value.
Fully diluted market cap = Maximum supply of a token * current price per
token
13. Gas
Gas is a unit of measurement used on the Ethereum blockchain. It
represents the amount of computational effort required to execute a transaction
or smart contract. In Ethereum, all transactions and smart contracts require
gas to be executed, and the cost of gas is paid in Ether (ETH), the native
cryptocurrency of the Ethereum network. The amount of gas required for a
transaction or smart contract depends on a number of factors, such as the
complexity of the operation and the amount of data involved. The use of gas
helps to prevent spam and other malicious activity on the Ethereum network by
making it costly for attackers to perform large numbers of transactions. In tokenomics,
gas can be an important consideration when designing and implementing token
systems on the Ethereum blockchain.
14. Governance
Token
Governance token gives its holders the right to participate in the
decision-making process of a decentralized network or organization. Governance
tokens are often issued by decentralized autonomous organizations (DAOs), which
are decentralized networks that are run by a set of rules encoded into smart
contracts on a blockchain. Holders of governance tokens can use them to vote on
proposals, make decisions about the direction of the network, or elect members
of the organization's governing body. It provides an important mechanism for
aligning the interests of the network's participants and ensuring that the
network is run in a decentralized and transparent manner.
15. HODL
Commonly known as “hold on for dear life” among crypto investors. It is
used in the crypto ecosystem to refer to a strategy of holding onto bitcoin
holdings through its various price fluctuations and volatility. The term
originated as a misspelling of the word "hold" in a 2013 Bitcoin
forum post, and it has since become a popular slang term among cryptocurrency
enthusiasts. It is often seen as a long-term investment strategy, where the
individual or entity believes that the value of the cryptocurrency will increase
over time and therefore wants to hold onto it rather than selling it. It can
help to create a more stable and liquid market for a particular cryptocurrency,
and can also potentially lead to significant returns if the value of the
cryptocurrency increases.
16. Halving
Halving, or halving events, refer to a process that denotes the rate at
which new coins are created is reduced by half. This typically happens every
four years as in the case of Bitcoin, or after a certain number of blocks have
been mined on the blockchain. Firstly they help to control the supply of new
coins and prevent inflation. Second, they can act as a catalyst for price
increases, as the reduced supply of new coins can lead to increased demand and
a higher price. It is an important factor to consider when evaluating the
potential value and price dynamics of a cryptocurrency.
17. Hard
Cap
Hard cap is a term used in the context of initial coin offerings (ICOs)
and other fundraising events in the cryptocurrency and blockchain industry. It
is the maximum amount of funds that a project is seeking to raise during its
fundraising event. Once this maximum amount is reached, the fundraising event
will end and no further investments will be accepted. It provides a clear and
defined limit on the total amount of funds that can be raised, and can help to
ensure that the project's fundraising goals are met without over-extending
itself. It is an important factor for both investors and project teams, as it
sets the upper limit on the potential size of the project and its potential
returns.
18. Layer
1
Layer 1 refers to the underlying infrastructure of a blockchain network.
This is the foundational layer in which all other elements of the network are
built, and it typically consists of the protocols,
consensus mechanisms, and network rules that govern the operation of the
blockchain. They are typically considered to be the core infrastructure that
supports the creation and exchange of tokens on a blockchain network. This can
include things like the smart contract platform, the consensus mechanism, and
the cryptographic algorithms used to secure the network.
19. Layer
2
Layer 2 refers to solutions that are built on top of the underlying
layer 1 infrastructure of a blockchain network. These solutions are designed to
enhance the functionality of the network, by providing additional features or
capabilities that are not natively supported by the layer 1 infrastructure. They
can be an important consideration for projects that need to support large
numbers of transactions or complex token structures, as they can provide the
necessary infrastructure to support these requirements.
20. Liquidity
Pool
A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens
locked in a smart contract that is used to facilitate trades between the assets
on a decentralized exchange (DEX). Liquidity pools are often used in
decentralized finance (DeFi) platforms, where they can help to facilitate the
exchange of tokens and other assets in a decentralized and trustless manner. By
providing a readily available source of assets for trading, liquidity pools can
help to reduce volatility and increase the overall liquidity of a market. This
can be beneficial for both market participants and for the platform or network
as a whole.
21. Liquidity
Provider
Liquidity provider refers to an entity that offers to buy or sell tokens
on a cryptocurrency exchange or other trading platform. By offering to buy or sell
tokens, the liquidity provider helps to ensure that there is always someone on
the other side of a trade, which helps to maintain a healthy and active market
for the tokens. This can be especially important for smaller or less liquid
markets, where the lack of liquidity can make it difficult for buyers and
sellers to find each other and complete trades. Liquidity providers can play a
crucial role in providing the necessary liquidity to support the growth and
development of a token economy.
22. Liquidity
Taker
Liquidity taker refers to an entity that buys or sells tokens on a
cryptocurrency exchange or other trading platform. By taking liquidity from the
market, the liquidity taker helps to maintain a healthy and active market for
the tokens. This can be especially important for smaller or less liquid
markets, where the lack of liquidity can make it difficult for buyers and
sellers to find each other and complete trades. Liquidity takers can play a
crucial role in providing the necessary demand for tokens, which can help to
support the growth and development of a token economy.
23. Market
Capitalization
Market capitalization refers to the value of a cryptocurrency or token.
Market cap is calculated by multiplying the total supply of a token by its
current price. It provides an indication of the size and potential value of a
particular cryptocurrency or token. This is often used to compare the relative
value of different cryptocurrencies and tokens, and can be a useful tool for
investors looking to make informed decisions about which assets to buy or sell.
Market capitalization = Total supply of a token * current price per
token
24. Maximum
Supply
Maximum supply is the total number of coins or tokens that will ever be
created. It is typically set at the time of a cryptocurrency's creation, and it
cannot be changed unless there is a hard fork or other major change to the
underlying blockchain. It is a useful metric for investors and other market
participants to consider when evaluating the potential value and scarcity of a
cryptocurrency. In general, it is considered that a project with a lower
maximum supply may be considered more scarce and potentially more valuable than
those with a higher maximum supply.
25. Mining
Mining is the process where specialized computers also known as nodes or mining rigs, validate blockchain
transactions for a specific cryptocoin and, in turn, receive a mining reward
for their computational effort. This is usually done by individuals or groups
of individuals known as miners. This process helps to ensure the security and
integrity of the blockchain, and it also helps to support the overall
functioning of the network.
26. Minting
Minting is the process of generating new coins by authenticating data,
creating new blocks, and recording the information onto the blockchain through
a “proof of stake” protocol. It determines the rate at which new tokens are
introduced into the market and the overall supply of tokens that will be
available. The minting process can have a significant impact on the value and
scarcity of a token, and it is often carefully designed and controlled to
ensure the stability and growth of the token economy. Both new units of a cryptocurrency and
Non-Fungible Tokens (NFTs) can be minted this way.
27. NFT
NFT stands for non-fungible token. It is a type of digital asset that
represents ownership of a unique item or piece of content. NFTs are often used
to certify ownership of digital art or collectibles, and they are stored on a
blockchain. This means that they are verifiable, secure, and cannot be
replicated. Because of their unique nature, NFTs are often bought and sold for
high prices.
28. P2P
P2P stands for peer-to-peer, and it refers to a decentralized network in
which participants can interact directly with each other, exchange tokens
between users without the need for intermediaries or central authority. This
can help to increase the security and efficiency of transactions, as well as
give users more control over their assets.
29. Pre-mining
It is the way of rewarding the developers, early investors and founders
for their contribution to launch cryptocurrency. It is similar to a company
selling its stake to its employees before it holds an IPO and goes public. It
could be done for a variety of reasons, such as to fund the development of the
project, to reward early adopters or supporters, or to give the creators of the
project a stake in the token. It is a controversial practice because it can be
used to unfairly benefit certain individuals or groups, and it can also be used
to manipulate the market for the token.
30. Proof
of Burn
Proof of burn uses tokens that are permanently removed from circulation,
known as "burning," in order to achieve distributed consensus. In
this system, miners show proof that they have burned a certain number of
tokens, and the more tokens they burn, the higher their chances of mining a new
block and earning rewards. This creates a scarce resource, as the tokens are no
longer available for use, which can then be used to achieve consensus in a
decentralized network.
31. Proof
of Stake
Proof of stake is a type of algorithm used to achieve distributed
consensus. In proof of stake, the creator of a new block of transactions is
chosen based on their stake in the network, which is typically represented by
the number of tokens they hold. Proof of stake is often seen as a more
energy-efficient and environmentally-friendly alternative to proof of work, as
it does not require miners to perform computationally-intensive tasks in order
to create new blocks.
32. Proof
of Work
Proof of work is a type of algorithm used to achieve distributed
consensus. In proof of work, the creator of a new block of transactions is
chosen based on their ability to solve a computationally difficult problem.
This process, known as mining, requires miners to perform a large number of
calculations in order to create a new block and earn a reward. Proof of work is
a widely-used consensus algorithm, but it has been criticized for its high
energy consumption and potential for centralization.
33. Pump and dump scheme
A pump and dump scheme a group of individuals or organizations
coordinate to artificially inflate the price of a token or other asset,
typically through misleading or false information. It is a type of market
manipulation. After the price has been pumped up, the individuals or
organizations involved in the scheme will sell their tokens at the inflated
price, resulting in a sharp drop in value and leaving other investors with
tokens that are worth less than they paid for them. This is illegal in most
countries, and they can be difficult to detect and prevent.
34. Reward
Token
A reward token is a type of
cryptocurrency that is used to incentivize certain behaviours within a
blockchain network. For example, a reward token might be distributed to users
who contribute their computing power to help maintain the network, or to users
who help to verify transactions on the network. These tokens can be traded or used
to access certain features within the network. Overall, the use of reward
tokens is intended to help create a sustainable ecosystem within the blockchain
network by aligning the interests of different participants.
35. Rug
Pull
A rug pull is a situation where the
creators of a blockchain project or token suddenly "pull the rug" out
from under its investors by disappearing and taking all the funds raised
through the project with them. This is typically done through an exit scam, where
the creators of the project will either suddenly shut down the project and
disappear, or will deliberately devalue the token by flooding the market with
it, causing a huge change in the price.
36. Soft
Cap
Soft cap is the minimum amount of funds
that a blockchain project or initial coin offering (ICO) intends to raise to
continue its operations. It is typically set by the creators of the project and
is announced before the ICO begins. It is used as a way to gauge the level of
interest in the project and to ensure that it will have sufficient funds to
continue its operations. If the project does not raise at least the amount of
the soft cap, it may be considered a failure and the funds that were raised may
be returned to investors.
37. Staking
Staking refers to the holding of your
crypto funds in a wallet and hence supporting the functionality of a blockchain
system. The cryptos are being locked in their wallets by the stakeholders. They
are then rewarded by the network in return thus providing a source of income.
It is typically done through a process known as proof-of-stake, where users are
chosen to validate transactions on the network based on the amount of tokens
they have staked.
38. Swap
Swap is a type of transaction in which
one cryptocurrency is exchanged for another. This can be done through a
cryptocurrency exchange or through a direct peer-to-peer transaction. This
technique is used by traders and investors as a way to diversify their
portfolios or to take advantage of price discrepancies between different
cryptocurrencies. Few exchanges offer swap services that allow users to
exchange multiple cryptocurrencies at once, without having to go through the
process of converting them to a single intermediate currency first.
39. Token
A digital asset that represents a unit of
value on a blockchain network. Tokens can be used for a variety of purposes,
such as representing a unit of a cryptocurrency, a share in a company, or a
vote in a decentralized governance system.
40. Token
Allocation
Token allocation refers to the distribution
of tokens within a cryptocurrency or blockchain project. This can include the
allocation of tokens to the creators of the project, to early investors, to the
project's development team, and to other stakeholders. This is typically
outlined in the project's white paper or other funding documents, and can have
a significant impact on the success of the project. A well-designed token
allocation plan can help to ensure that tokens are distributed in a fair and
transparent manner, and can help to align the interests of different
stakeholders.
41. Token
Distribution
The process of distributing tokens to the
various participants and stakeholders on a blockchain network. This can include
the initial distribution of tokens to investors and founders, as well as the
ongoing distribution of tokens to network participants who contribute their
resources to the network.
42. Token
Issuance
The process of creating and distributing
tokens on a blockchain network. This can involve conducting an initial coin
offering (ICO) or initial token offering (ITO) to raise funds for the
development of the network, or it can involve distributing tokens as rewards to
network participants who contribute their resources (e.g. computing power,
storage, etc.) to the network.
43. Token
Economics
The study of the incentives and
mechanisms that govern the supply and demand of tokens on a blockchain network.
This can include factors such as the total number of tokens in circulation, the
rate at which new tokens are created and distributed, and the mechanisms by
which tokens are exchanged and valued on the network.
44. Token
Listing Price
Token listing price refers to the initial
price at which a token is made available for purchase in a secondary market. It
has a significant impact on the token's initial adoption and trading activity
on the exchange. Price is determined by the market forces of supply and demand,
as well as factors such as the perceived value and potential future growth of
the token. Some exchanges may have a minimum listing price requirement to
ensure that only high-quality and legitimate tokens are listed on their
platform. The listing price is important because it can.
45. Token
Velocity
The rate at which tokens are exchanged or
used on a blockchain network. High token velocity can indicate a healthy and
active network, while low token velocity can indicate a lack of interest or
adoption of the network.
46. Token
Vesting
Token vesting is a concept in the world
of cryptocurrency and tokenomics that refers to the release of tokens over
time, rather than all at once. This is used as a way to align the interests of
token holders and project creators, by ensuring that the creators have a vested
interest in the long-term success of the project. In a token vesting
arrangement, tokens are typically released to the creators of a project over a
set period of time, such as monthly or quarterly. This can help to prevent the
creators from dumping their tokens on the market all at once, which could cause
the price to crash. It can also provide an incentive for the creators to
continue working on the project and to deliver value to token holders over
time.
47. Total
Supply
Total supply refers to the total number
of tokens that will be created and issued within a specific blockchain-based
network or platform. This is typically fixed at the time of its creation, and
cannot be changed unless there is a hard fork or other major change to the network.
It determines the maximum potential value of the tokens, as well as the
potential for price appreciation or depreciation over time.
48. Unlock
Schedule
An unlock schedule is a plan for
releasing tokens over time, as part of a token vesting arrangement. In a
typical unlock schedule, tokens are released to the creators of a project or to
investors over a set period of time, such as monthly or quarterly. It helps to
ensure that tokens are distributed in a fair and transparent manner, and can
prevent the creators from dumping all of their tokens on the market at once,
which could cause the price to crash. Unlock schedules are often used in
initial coin offerings (ICOs) and other crowdfunding campaigns as a way to
align the interests of token holders and project creators.
49. Ve
Tokens
Vote escrowed (Ve) tokens allow the token
holders to select a lock-up period for their tokens until a specific event
occurs. The longer you elect to lock-up your tokens, the more weight your
tokens may get in for governance voting, earning staking rewards, voting on
boosts to certain pools.
50. Wallet
Wallet refers to a digital storage platform that
allows individuals to securely store and manage their digital assets, viz.,
cryptocurrencies and tokens. A wallet typically includes a unique address that
can be used to receive and send tokens, as well as a private key that is used
to access and manage the tokens in the wallet. There are many different types
of wallets available, including online wallets, mobile wallets, desktop
wallets, and hardware wallets, each with its own set of features and security
measures. A good wallet is essential for anyone looking to participate in the
token economy, as it provides a safe and secure way to store and manage digital
assets.
51. Whale
A whale refers to a large holder of a particular
token or cryptocurrency. This could be an individual or an institution that has
a significant amount of a specific token, often acquired through large-scale
purchases or mining operations. Whales are known to have a significant influence
on the market, as their buying and selling activity can cause significant price
fluctuations. Whales are often closely watched by other market participants,
and their actions can have a significant impact on the price of a token.
On the road to expertise
With these frequently searched terms fresh in your
mind, you are ready to tackle Tokenomics head-on and continue your knowledge
exploration adventure. The subject is community driven and new words get coined
in the social context or in social media. Stay tuned to know more about the
resources available in the internet on Tokenomics.
If you have any query, feel free to drop a line at [email protected]
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