What is the token with the best tokenomics?

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What is the token with the best tokenomics.jpg

I see the crypto world as a playground where plenty of different concepts are tested out. Every crypto currency and every token is defined by it's tokenomics. Whatever type of „coin production“ we have, it's always kind of the same. There is an initial distribution, often in the form of airdrops or distributions among conceptors of a token. Then there is the distribution process in itself. These parameters will define how the supply of a token over time.

When creating a token, the supply is the parameter that can be planned and defined by the creators. The unknown parameter is the demand for this token. The demand can be influenced greatly by use cases. The better the use cases or the utility of a token, the higher a demand can be expected.

In this post, I would like to have a closer look at some supply models for tokens.

The initial supply

When a token is launched, there is or is not an inital supply that is distributed. Often the token creators issue some tokens for themselves to cover expenses and maybe also with the dream to get rich in the process. In this phase, the token can also be issued in the form of an airdrop. With an airdrop, token creators hope to spread the token among a bigger population. This can be a great way to promote it.

The supply growth

Most of the tokens have a way to grow their supply. This is often called inflation which is actually not the most appropriate term to define that. I would call it rather supply growth. This growth can have several forms. The newly created tokens can be issued through mining, staking or any other process. The way the tokens are created doesn't really matter. What matters however is the speed at which the tokens are created.

Let's make some examples to illustrate how from a mathematical point of view the change of these parameters influences the growth of a token supply. In a proof of stake environments, this growth would then allow an APR for the token stakers. When I speak about APR, this is not really appropriate. It should rather be growth rate but I have already supply growth and I want to avoid to mix everything up.

Example 1: no initial supply and linear supply growth

This token starts with 0 initial supply. There are no tokens distributed among creators and there is no airdrop.

New tokens are minted at a linear rate of 10 tokens per day.

In the table below, you see the APR that such a distribution would create.

DayTotal supplyIncrease per dayAPR
1010-
2101036500.00
3201018250.00
4301012166.67
540109125.00
650107300.00
760106083.33
870105214.29
980104562.50
1090104055.56
11100103650.00
12110103318.18
13120103041.67
14130102807.69
15140102607.14
16150102433.33
17160102281.25
18170102147.06
19180102027.78
20190101921.05
21200101825.00
22210101738.10
23220101659.09
24230101586.96
25240101520.83
26250101460.00
27260101403.85
28270101351.85
29280101303.57
30290101258.62
31300101216.67
32310101177.42
33320101140.63
34330101106.06

The initial APR levels seem huge and Defi platforms often use such distributions to attract money. It's also clearly visible that with every day that passes the APR decreases.

Example 2: initial supply and linear supply growth

Let's take the same example as above but this time there was an initial airdrop of 1000 tokens made by the creators.

Let's have a look at how this will influence the supply.

DayTotal supplyIncrease per dayAPR
1100010365.00
2101010361.39
3102010357.84
4103010354.37
5104010350.96
6105010347.62
7106010344.34
8107010341.12
9108010337.96
10109010334.86
11110010331.82
12111010328.83
13112010325.89
14113010323.01
15114010320.18
16115010317.39
17116010314.66
18117010311.97
19118010309.32
20119010306.72
21120010304.17
22121010301.65
23122010299.18
24123010296.75
25124010294.35
26125010292.00
27126010289.68
28127010287.40
29128010285.16
30129010282.95
31130010280.77
32131010278.63
33132010276.52
34133010274.44

If you compare example 1 and 2, you have actually a same linear supply growth. However the APR is totally different because there was an initial supply.

An existing initial supply will bring the APR of a token down significantly and will give it an apparent stability.

Effectively, the airdroped example brings the evolution of the supply further down in time. Simply put: Take example 1, add 100 days and you will have example 2.

Example 3: No initial supply, deflationary supply growth

Now let's take the example 1 and add a deflationary supply growth. This means that every day the supply increase will be slowed down by 1%. So every day a little bit less tokens are issued.

Let's see what this looks like:

DayTotal supplyIncrease per dayAPR
10.0010.00-
210.009.9036135.00
319.909.8017976.71
429.709.7011924.15
539.409.618898.02
649.019.517082.47
758.529.415872.20
867.939.325007.81
977.269.234359.59
1086.489.143855.49
1195.629.043452.28
12104.668.953122.43
13113.628.862847.60
14122.488.782615.10
15131.258.692415.86
16139.948.602243.23
17148.548.512092.21
18157.068.431959.00
19165.498.351840.62
20173.838.261734.74
21182.098.181639.47
22190.278.101553.31
23198.378.021475.00
24206.397.941403.53
25214.327.861338.05
26222.187.781277.82
27229.967.701222.25
28237.667.621170.82
29245.287.551123.09
30252.837.471078.67
31260.307.401037.23
32267.707.32998.48
33275.027.25962.18
34282.277.18928.09
495993.020.072.57
496993.090.072.54
497993.160.072.51
498993.230.072.49
499993.300.072.46
500993.360.072.44
501993.430.072.41
502993.500.072.39
503993.560.062.37
504993.620.062.34
505993.690.062.32
506993.750.062.30
507993.810.062.27
508993.880.062.25
509993.940.062.23
510994.000.062.20

If compared with example 1, it's not surprising that the APR decreases faster. When you fast forward, you will soon reach a point where there is hardly any APR anymore. On the other hand, we will have a maximum supply that will never be passed. Polycub is built on a similar distribution model.

Example 4: No initial supply, inflationary supply growth

Now this is something that you seldom see in the crypto world. I don't know any token that works like that. We have no initial supply like in Example 1 but every day the distributed supply increases by 1%.

DayTotal supplyIncrease per dayAPR
10.0010.00-
210.0010.1036865.00
320.1010.2018524.20
430.3010.3012410.81
540.6010.419354.26
651.0110.517520.45
761.5210.626298.02
872.1410.725424.93
982.8610.834770.20
1093.6910.944261.02
11104.6211.053853.75
12115.6711.163520.57
13126.8311.273242.98
14138.0911.383008.14
15149.4711.492806.89
16160.9711.612632.52
17172.5811.732479.98
18184.3011.842345.42
19196.1511.962225.84
20208.1112.082118.89
21220.1912.202022.66
22232.3912.321935.62
23244.7212.451856.53
24257.1612.571784.33
25269.7312.701718.18
26282.4312.821657.35
27295.2612.951601.21
28308.2113.081549.26
29321.2913.211501.04
30334.5013.351456.17
31347.8513.481414.31
32361.3313.611375.16
33374.9413.751338.49
34388.6913.891304.05
496136746.331377.46367.67
497138123.791391.24367.64
498139515.031405.15367.62
499140920.181419.20367.59
500142339.381433.39367.56
501143772.771447.73367.54
502145220.501462.21367.51
503146682.711476.83367.49
504148159.531491.60367.46
505149651.131506.51367.44
506151157.641521.58367.41
507152679.221536.79367.39
508154216.011552.16367.37
509155768.171567.68367.34
510157335.851583.36367.32
511158919.211599.19367.30
512160518.401615.18367.27
513162133.581631.34367.25
514163764.921647.65367.23
515165412.571664.13367.21
516167076.691680.77367.18
517168757.461697.57367.16
518170455.041714.55367.14
519172169.591731.70367.12
520173901.281749.01367.10

In this example 4, we see that the daily supply is growing at a steady rate because of the inbuilt inflation. With these numbers, the APR will never be below 365%! On the other hand, the overall supply goes to the moon. The system that looks most like this would be that of fiat money.

What is the best system?

These are 4 purely theoretical examples that illustrate how the supply of a token can be manufactured by playing with the initial supply, the supply growth and the inflationary model. In a way, every token out there plays with these parameters and each tokens strives to be the perfect solution.

In my opinion the quality of a token is defined by the combination of an appropriate supply evolution and the according use cases. We should always keep in mind what is the utility of a token and what the best supply evolution is for this utility.

What is in your opinion the token with the best tokenomics?


Let's connect ! You can find me on these platforms:

Posted Using LeoFinance Beta



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25 comments
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I am interested in the concept of these airdrops and farming. The APR's sound amazing. But isn't the APR earned directly correlated to the new value of the tokens?

Therefore any gain is equally offset by the devaluation of said token. I think Hayek gave example in the Austrian School of Economics that if you have a supply of 10 tokens and 1 loaf of bread. And then split the tokens into 20 and cut the bread in half.

The fact that you may have 20 tokens and 2 halves of bread, doesn't change the value of anything.

So is the Airdropping and Farming tokens just a race against time and others to cash out ASAP before the coins devalue?

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You are totally right. The supply of a token has always to be in balance with the value behind it or the demand of the token. With many DEFI projects, it's a race against time to try to catch these juicy APR's before the token devaluates. Without further use cases the devaluation is inevitable in my opinion.

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I would love to understand the dynamics and drivers behind the Hive Token. Trying to map it out similar to what you have done here could be a good start for me.

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I made a video about the tokenomics of Hive recently that might be interesting for you.

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Thanks. Very helpful. The advertised curation returns for some of the curation trail delegations seem quite high (leo.voter) 16%. Is this consistently attainable?

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I don't really know how leo.voter is financing these 16% return. Hopefully not everything is financed by printing new tokens. For the Liotes project that I'm running with @ph1102, we are providing about 10.5% APR. There are around 9% from curation rewards and we finance the difference with our post rewards that we give back to delegators.

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This is interesting. Actually seeing a spreadsheet like this, makes a difference. It's sometimes hard to actually visualize. Now the difference between no initial,supply growth vs initial, supply growth. There's difference is noticably on day 34 with initial, supply growth is about 25%. It's clearly good to compare !

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What I find very interesting is that you can actually tweak every parameter individually to adapt things. I like to visualize things with such spreadsheets because sometimes the evolutions are quite stunning. Thanks for stopping by!

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I admire your patience in crafting these numbers. Though I could follow the logic of the four examples, the details evade me. As to the question regarding the token with the best tokenomics, I am still torn between the two economic models, one that is based on scarcity and the other that I first stumbled upon here on Hive, which is based on abundance. Though I am inclined to learn the latter model, still my current preference is the one with minimum supply and a lot of utility. I am not just sure where it will fall among those four examples that you mentioned.

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I believe Hive has actually a very good tokenomics profile. As of today, I would situate hive under Example 2. It started with a "copy" of the old blockchain with a well spread supply and the growth of the supply is relatively slow (about 7.5% p.a this year) but still pretty interesting to stake the token.

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Thanks!

!hivebits
!PIZZA

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It is interesting how it changes over time and how you have to keep on top of the new ones. Otherwise you look at it later and it's APR has disappeared and the value keeps dropping.
!PIZZA

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You are right, new tokens tend to have a bigger APR and over time with decreasing APR, the prices also collapse if there are no new use cases.

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This is very insightful! Am not an expert on this topic, but from the numbers, it seems like the first two examples seem more sustainable for me.

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There are not that many experts in this field I believe and a lot of token creators make some basic mistakes when creating their tokens.

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Thank you for providing a visual representation of the different ways the APR is impacted by the supply growth and tokens distribution. There are quite a few tokens on the Hive Platform that are at different ages. Some have been around since the beginning while others were created within the last few months. I noticed that some users chase or jump into new tokens so they can earn the higher APR due to the tokenomics. Would all of this information be included in the token whitepaper for each specific token? Take care.

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I have realized that a lot of tokens fail to have a long term perspective on their supply. They give the initial supply (airdrops, owners distribution), the supply growth (minted tokens over time) but seldom show how the token supply and the token growth will evolve.

I noticed that some users chase or jump into new tokens so they can earn the higher APR due to the tokenomics

That's totally true. Since the initial supply of these new tokens is small, much higher APR's can be reached. In addition to that, there is often a kind of hype around new tokens because of that and prices often stay stable or go up. But for almost all token that don't have any other use cases than staking, the value goes down over time together with the APR.

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It looks like all of them have to decrease APR and it's just a trade-off on which one fits the utility. I do think the use cases are probably the deciding factor in whether or not things will maintain its own price.

Posted Using LeoFinance Beta

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I think that the tokenomics have definitely to be adapted to the use cases of a token. The better the combination between the two, the more successfull a token can be.

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(Edited)

Good presentation of the base models. The problem is that if one doesn't find the right model initially (especially on the short side), it's very hard to compensate without messing the tokenomics. That also happens if the ecosystem outgrows in use cases of the initial forecasts. The best solutions in this case, imo, come from the second layer.

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if the ecosystem outgrows in use cases

That's something I have witnessed quite often. A token was born with a certain use case, then new stuff was added and suddenly the tokenomics weren't that appropriate anymore.

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