Tokenomics is a modern area in financial literacy that is still developing. Knowing the ins and outs of this fascinating area will aid you in discovering fundamental value in tokenized ventures.
Let's go through some important points to look for when assessing the value of various tokenized ventures.
What is actually going on? : For any project, the official website is the best place to start. You should be able to deduce the specified use case and business model for any tokenised project in a matter of minutes. The future demand for the value that the token provides is an important factor to consider. It's useful to consider how other companies could compete for the same customers, assuming they aren't on the blockchain. If you can find other companies, you can investigate how profitable they are and whether or not they are growing.
Token supply: Token supply is a must-check. To figure out what the total market cap of the tokens is, you'll need to understand this metric (multiple token supply by average traded price). This market cap statistic can be compared to other main indicators in terms of relative size. It's a red flag for any project if you can't find the total current supply of a specific token. Check etherscan.io if the token is based on Ethereum. If the blockchain is native, look for a block explorer for the project.
Token concentration: This refers to the amount of tokens (currently in circulation) that are kept in a wallet or with a stakeholder. The project's treasury/foundation, for example, may be a stakeholder. Concentration can be both beneficial and detrimental at times. If tokens are widely distributed across a large number of addresses, this may indicate a large user base with strong decentralisation.
Tokens that have been ‘cryptographically' encrypted: This applies to any tokens that have been ‘cryptographically' locked. This means that once the smart contract is unlocked, no one can release a certain number of tokens. Time is normally the criterion, although other parameters may also be used. Due to a decrease in token availability, this feature illustrates long-term benefits and confidence in a project.
Burned tokens: Some initiatives use the technique of burning tokens to reduce the total supply of tokens. The burn rate is normally related to a parameter that is being monitored as part of the project's business model. Binance's native token is a perfect example of this (BNB). Every fifth, a certain amount of ERC-20 tokens are cryptographically burned in proportion to the exchange's earnings (BNB token can be used as a pre-payment of trading fees at Binance).
Flow can be measured in a variety of ways, including token flow. It could refer to daily trading volume (as a percentage of market capitalization), but a better metric, especially for dApps, would be the flow of unique tokens through smart contracts. Dappradar.com or stateofthedapps.com are good places to look for this information. Both of these websites monitor dApps in the EOS and ETH ecosystems. You can track key metrics for each project, such as the number of transactions processed via a contract address or the number of unique users who have used the app in a given time span.
Many projects have an open GitHub repository that hosts open source code – again, if you can't find one, it's a red flag. Coinpaprika.com is a great place to look up this stuff. On the web, go to the group tab and look at the right-hand side of the screen for some main statistics. Stars (think of this as the number of accounts subscribed to a repository) and contributors are two main attributes to keep an eye on. One-month commits are also a valuable metric for assessing recent behaviour. A commit is a single proposal to modify a part of the codebase by another (does not mean that this change was approved or not).
Most crypto ventures have a presence on a variety of social media platforms. Twitter, Reddit, and Telegram are the key networks to keep an eye on. Again, using data from coinpaprika.com, you can see how many Twitter followers, Subreddit subscribers, and Telegram community members they have (all this information can be seen in the community tab).
Conclusion
Many tokenized projects are difficult to value. Looking for real value in what a project is producing in terms of its business model is our advice to anyone researching this space. There are a lot of projects with a lot of money and slick marketing materials out there. Don't be fooled by the hype, and do your due diligence by digging a little deeper.