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HomeCryptoThe Importance of Tokenomics in Crypto Investing

The Importance of Tokenomics in Crypto Investing

The crypto world has seen tremendous growth over the last several years, with more investors participating in the massive global crypto market. Today, new investors have the option of over nineteen thousand different cryptocurrencies to select from. This can seem very overwhelming to inexperienced traders. However, if you have a basic understanding of tokenomics, you can begin to quickly narrow down your search for the most beneficial coin for your financial goals.

What is Tokenomics?

Tokenomics has to do with the regulations, rules, and unique benefits that can be built into the design of a new cryptocurrency. New tokens are carefully designed with specific benefits that incentivize users to invest and actively participate in that coin’s economy. Each new token has a whitepaper published with the launch of the coin that outlines the goals and motivations behind the creation of the coin. Here are a few significant benefits to look out for that could be built into a new token.

Burn

Burning crypto is a deflationary practice that can help regulate the price of a specific cryptocurrency. If the Bitcoin price gets too high due to inflation, a portion of Bitcoin is taken out of circulation permanently to increase the value of the remaining coins. Some new tokens, like the new FTX token, FTT, have strong and beneficial burn systems that will maintain a specific coin value for extended periods. FTT uses a third of the fees collected through the FTX platforms to buy large amounts of FTT every week and burn it all. These practices will help grow the market and encourage more investors to participate in the trade of that particular coin.

Airdrops

Airdrops are another great benefit that can come from the tokenomics of a cryptocurrency. Airdrops are random distributions of free tokens to all holders of a specific coin. These gifts encourage investors to hold a particular coin or participate in a new trade. The team at FTX will offer its FTT holders free airdrops of the SRM token to encourage them to utilize the new Serum DEX. Airdrops are super popular and can be an excellent opportunity to diversify your digital investment portfolio.

Community

The community surrounding a cryptocurrency can offer you great insight into the sustainability of that particular crypto. Coins with large and active communities will typically last longer than those without large followings and with low participation. Joining a crypto community with other enthusiasts and experts can teach you a lot about the industry and help keep you up to date on the latest crypto news and investment opportunities. Some coins like FTT have created communities by offering unique benefits to their coin holders. FTT coin holders can become crypto BFFs and attend or host exclusive events, and FTT holders are encouraged to share their ideas and opinions with the FTX team to help govern the coin’s future.

Long-Term Investment Options

Your long-term investment options are another essential characteristic to consider when selecting the best cryptocurrency for your goals. Cryptocurrencies built on proof-of-stake blockchains offer their users the option to become a network node and stake their coins in a pool as collateral for a chance to be selected to verify network transactions in exchange for rewards. The more crypto staked with a single node, the more likely that node will be chosen to verify transactions. Each successful verification gives all coin holders in the pool a percentage of the rewards. If your blockchain is not proof-of-stake, you can still generate returns over time through yield-farming. Yield farming allows you to lock your coins into a liquidity pool where they will be lent out to borrowers on the network in exchange for rewards in the form of fees, interest, or new coins. Both of these investment options come with their own risks but can be highly lucrative for many investors.

A strong understanding of tokenomics and how each new token can be uniquely designed is a great way to find the best cryptocurrency for your financial goals. Keep these benefits in mind as you search for the coin you want to invest in. 

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