Introduction to Tokenomics covered how to examine the given project’s token model, and if in a relative way, I am discussing the supply of a project’stokens along with the other external examples of this supply, I’ll delve more deeply into the supply side.
This may seem a minor issue at first glance, but knowing a supply for a specific token is vital for your investment’s return. Until you know how and when to research it, getting the wrong impression about the supply for a project can be easy.
Even apparently simple metrics like market capitalization can be misleading or changed unexpectedly. Consider everything you know when evaluating a certain company’s supply, so you are more knowledgeable when you make your next investment.
Important Things About Token Supply?
The things we’re trying to determine are: where is the supply now, where is it going to be in the future, when is it getting there, and what method will it be going through to get there.
Market Cap and Fully Diluted Valuation
Both are the first be-on-the-money metrics to assess the capital value of a cryptocurrency or token. The market capitalization is the circulating supply of tokens multiplied by the token price. The FDV is the current price multiplied by the max supply, if all tokens were in circulation.
You can use these two metrics in conjunction with other metrics that we will go through as they give you an idea of what the economy is valuing a project today, and how that project should grow in the future to justify its current cost.
In contrast to the DCF and the FMV in the current market, there are many tokens that have yet to be discharged at the present time. You should assess the way that these tokens will be positioned in the market prior to deciding whether the cost is currently reasonable.
Therefore, you should look at is the market cap out vs. FMV ratio, one of many things that will help you understand the nature of a supply. Then, after you glance at it, you’ll wish to learn what it means for the circulating supply and maximum supply numbers.
Circulating Supply & Max Supply
Circulation supply and max supply provide answers about how many tokens is available, and where it will be in the future. They are also assisting in understanding market cap and diluted valuation.
Circulating Supply is where things get trickier. How many of a target token are circulating? We need to dig in on the actual contracts. Details related to emissions schedule, vesting and distribution are important.
When we explore the documents of our project, the emissions schedule tends to be when we have to put in our energy. You may need to do some sleuthing to be able to access it. Keep in mind that one of the first elements of your emissions schedule is what the percentage changes look like. Even if the schedule gradually increases by 4% every four years, if it starts at the very start with small percentage or your funds, this can pose a problem for early investors.
Initial Distribution & Farming
Many protocols will allocate a good deal of their token emissions to lp rewards. If you give liquidity to the protocol, you can stake this liquidity to earn a steady supply of tokens. It looks like that’s a very community-oriented system, as anybody can buy the tokens, build liquidity, and utilize it to earn more tokens. But depending on how this method is put to use, it might actually be a subtle authority of individual insiders or the initial team to enlarge their share of the tokens.
When users unlock large amounts of tokens in protocols, they should observe that this could lead to issues.
When you’re digging into the token of a project, getting a good understanding of the supply and how it will change over time will give you a better sense of whether or not now is a good time to invest.