Tokenomics is the topic of understanding the supply and demand characteristics of cryptocurrencies.
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A Breakdown of Tokenomics
Tokenomics — the topic of understanding the supply and demand characteristics of cryptocurrency.
In the traditional economy, economists monitor the issuance of a currency using official money supply data. The numbers they report are generally called M1, M2 and — depending upon the country — M3 or M4 as well. An in-depth explanation of the four M categories is beyond this tokenomics analysis: just know that M1 is a measurement of the most liquid monies, M2 is less liquid, and so on. These numbers help to enable transparency and monitoring of different aspects of the supply of a currency.
These numbers are important because throughout history, kings, queens and governments have had a habit of creating additional money in their country. It turns out that running a country or fighting a war can be very expensive, and it was not always easy to raise revenues or balance a budget, which meant that it was often politically expedient to simply create more currency.
In the modern world, things like bank bailouts and pandemic responses have required governments around the world to create substantial amounts of new currency very quickly.
While governments oversee this process, creating additional currency can cause a slow, or sometimes fast, reduction in the value of the existing money. We call this reduction “inflation” and it is most visible when the prices of the things we buy increase year after year.
What Is a Token?
Cryptocurrencies and tokens built on blockchain have pre-set, algorithmically created, issuance schedules. This means that we can predict with quite some accuracy how many coins will have been created by a certain date in time. Though it is possible for most cryptoassets to have this issuance schedule altered, it will normally require the agreement of many people and is very difficult to implement. This provides some comfort and security for owners, because they know the tokenomics and what degree their asset will be created in a way that is much more predictable than governments creating money.
What Is The Total Bitcoin Supply?
While 21 million of total Bitcoin supply may sound like a very large number, when compared to the 8 billion or so people on earth, it is obviously incredibly small. It is this imbalance that leads many people to compare Bitcoin to gold and think of it as “hard” money.
Dogecoin and Grin Circulating Supply
Dogecoin circulating supply is currently 131.13 billion as of September 2021, with no fixed maximum supply. It has an inflationary supply, instead of a deflationary one like Bitcoin. Proponents of Dogecoin, which include high profile billionaires, argue that this tokenomics is what makes it a usable currency.
The founders of Grin hoped that this feature would make it easier to maintain a stable price and thus become a more usable currency. It took several years to understand whether this would actually happen and it seems that the Grin tokenomics experiment failed.
Why Is Tokenomics Important When Investing in Cryptocurrency?
In which case, there are a number of factors to consider when looking at crypto tokenomics. Perhaps the most important is to understand how the digital currency will be used. Is there a clear link between usage of the platform or service being built and the asset? If there is, there is a strong chance that a growing service will require purchases and usage that ultimately helps to increase the price. If there is not, what can the token be used for?
Other important questions to answer include the following:
- How many coins or tokens currently exist?
- How many will exist in the future and when will they be created?
- Who owns the coins? Are there some set aside to be released in the future to developers?
- Is there any information to suggest that a large number of coins has been lost, burned, deleted or are somehow unusable?
Tokenomics in Determining Cryptocurrency Value
Tokenomics is also helpful as guidance to understand how much an asset might be worth in the future. For example, many people new to crypto will think something like, “If this coin becomes as valuable as Bitcoin, then one day…” while in reality it might never be possible. As an example, let’s think of two coins mentioned above, Bitcoin Cash and Tron. Bitcoin Cash has the same total supply as Bitcoin, so thinking that one may become as valuable as the other in time has some legitimacy — it is possible. However, with more than 100 billion Tron existing, for one coin to be valued in the thousands of dollars, Tron would need to become the most valuable business in the history of the world — how likely is that to happen?
While these questions may seem to require complex answers, they will provide an extra way to view cryptoassets and help to understand whether one asset is more likely to have a great future than another.
Since this article was first written, tokenomics has evolved substantially and become a critical part of the design or use of a token or NFT collection. Below I explain some of these innovations and how they are implemented to add value to a project.
Advanced Token Utility Models
Governance Participation
Staking and Yield Farming
Access to Services
Evolving Token Distribution Strategies
Dynamic Vesting Schedules
To foster long-term commitment and minimize the risk of early token dumps by insiders, many crypto projects now implement dynamic vesting schedules. These schedules determine how and when allocated tokens become available to investors, team members, and advisors. Unlike traditional fixed vesting periods, dynamic models can adjust based on milestones, market conditions, or governance decisions. For instance, if a project meets a certain growth target or successfully launches a product, token unlocks may accelerate. Conversely, if key deliverables are delayed, vesting can be paused or extended. This approach aligns incentives more effectively between stakeholders and the health of the ecosystem, encouraging long-term value creation rather than short-term speculation.
Community Incentives
Modern tokenomics places a much stronger emphasis on incentivizing community engagement through mechanisms like airdrops, contributor rewards, referral programs, and retroactive grants. These tools are used not just to market the token but to create a sense of ownership and participation. For example, early users who test a protocol or provide feedback may later be rewarded with tokens in retroactive airdrops—an increasingly common practice among DeFi and layer-2 projects. By directing tokens toward active users rather than passive investors, projects cultivate more loyal and involved communities. This grassroots-oriented distribution builds network effects organically, helping projects scale while staying aligned with decentralization ideals.
Ecosystem Development Funds
In 2025, many projects reserve a significant portion of their token supply for ecosystem development funds—treasuries specifically earmarked to fuel the growth of the broader ecosystem. These funds are used to provide grants, bootstrap partnerships, support developers, and incentivize new use cases built on top of the core protocol. Decisions around how these tokens are allocated are often governed by DAOs or community-led councils, ensuring transparent and decentralized capital deployment. By sustaining innovation and incentivizing third-party builders, these funds play a critical role in expanding the utility and reach of the token, making it an essential pillar of modern tokenomic design.
Integration of Real World Assets
Real Estate and Commodities
Regulatory Compliance
Bridging Traditional and Decentralized Finance
GameFi and Dual-Token Economies
Utility Tokens
In GameFi ecosystems, utility tokens serve as the backbone of in-game economies. These tokens are typically used for day-to-day transactions such as purchasing in-game assets, upgrading characters, or paying for game features. By tokenizing these functions, developers allow players to earn, trade, and spend value in a borderless and transparent manner. Crucially, utility tokens often have inflationary supply models to ensure broad accessibility and maintain active gameplay dynamics. However, many projects are now experimenting with mechanisms like token burns or fixed supply caps to manage long-term value. The goal is to strike a balance between player incentives and economic sustainability, avoiding hyperinflation while preserving engagement.
Governance Tokens
To empower players beyond the game itself, many GameFi platforms introduce a second, governance-focused token. These governance tokens are typically limited in supply and grant holders voting rights on key decisions such as game updates, reward schedules, and treasury spending. They transform players into stakeholders, allowing them to shape the evolution of the game. Often, governance tokens are harder to earn and may be distributed through staking, liquidity provision, or long-term participation. This separation of utility and governance helps isolate speculative dynamics from gameplay incentives, while also giving dedicated users a meaningful voice in project direction. In essence, it formalizes the concept of community-driven game development.
Balancing Dual-Token Models
The dual-token model—featuring both a utility and a governance token—has become a popular framework for balancing gameplay mechanics with broader ecosystem governance. However, implementing this structure requires careful tokenomic planning to prevent issues like runaway inflation, value leakage, or governance apathy. Projects must define clear roles and limits for each token, ensure fair distribution, and create mechanisms for long-term utility and demand. For instance, some games introduce token sinks (mechanisms that permanently remove tokens from circulation) or allow players to convert utility tokens into governance tokens under specific conditions. When executed well, dual-token models create more resilient and scalable economies that can adapt to both gaming dynamics and financial realities.