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The importance of token economics when investing

by Syed Shoeb
, The importance of token economics when investing

Tokenomics and valuation are of utmost importance to investors. Tokenomics takes Token Design as an input and “models” to a mini-economy to understand how this mini-economy will behave and influence the value of your native token.

Looking at the Token Design, investors try to understand their reason for investing in the project. Investors look out for parameters like the size of the market you are targeting, how big the potential is, how you will get traction, how your supply side is modeled, etc. Value of investment increases or decreases on the basis of Token Design.

We have put together an exhaustive guide of questions to tackle investor’s potential.

Token Demand is relevant for an investor to understand how big the market potential for your network is. From a niche market to a trillion-dollar sector, this is crucial in modeling the value development of your token.

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  1. What is your target audience and potential market capitalization in USD?
  2. What percentage of your potential audience can you reach?
  3. Who are you competitors in the market?
  4. What are the key mechanisms through which you expect to gain traction and market adoption?
  5. How do you expect your token will get market adoption and evolve in terms of market share?

Token Supply is important for determining liquidity and circulation of the token and the subsequent inflation. With the wrong supply schedule the value of tokens will go down.

Important questions for determining the same would be:

  1. What is the annual inflation rate for your token?
  2. How do you plan to buy back your tokens?
  3. How will you mint new tokens and regulate supply?
  4. How will the new tokens be brought into circulation?
  5. What percentage of tokens have you reserved for mining and what is the percentage held by the team and investors?
  6. What percentage of tokens do you expect to hold?
  7. Will traders stake or deposit your tokens and what is the mechanism?

The answers to these questions will help investors understand how to determine whether a token’s price is fair or not. Answers will also help you determine a fair ICO price for the token, its roadmap and development for the following decade and market adoption levels. Discounts if any are also determined through this questionnaire. Early investors receive special discounts and thinking about these questions with the development team will help you develop a sense of the Tokenomics.

In conclusion, a well thought-out tokenize structure for a project is 100% necessary if teams want to receive the proper funding for their cryptopreneur endeavor.

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