What indicators should you look at before investing?

Good token economics can help a token grow hundreds of times within a year, while bad token economics can cause a token to fall by 90%. Understanding token economics is the most important skill in crypto. If you don’t understand token economics, it’s difficult to be a successful investor. Learning is crucial, don't trade blindly, otherwise you may suffer losses. Crypto KOL cyclop gave an overview of token economics, here is a complete guide to token economics.

When you first find a potential coin, such as on CMC, you will see the following:

  • Market capitalization (MC)

  • total supply

  • Circulation

  • Fully diluted value (FDV)

These are the basic supply indicators:

  • Circulation: tokens currently in circulation

  • Total Supply: The total amount of tokens that can exist

  • MC: Total value of circulating supply (in USD)

  • FDV: Total value of total supply (in USD)

Understanding these metrics allows you to evaluate a coin’s potential. But to do that, you need to understand more than just the nominal concepts. You also need to understand how they work and how they affect prices.

Start with supply first. There are two paths for tokens:

  • inflation

  • deflation

Inflation Tokens: The supply of a token can be increased, known as a release.

Release is a negative because it usually results in a decrease in value. However, if the release is slow and in small amounts, it will not have a significant impact on value.

Deflationary Token: A situation where the supply of a token decreases over time. This happens when a project buys back tokens and burns them. In theory, reducing supply should increase value, but that's just theory.

Let’s now discuss the main factors that determine token issuance and longevity: allocation and distribution.

There are two methods:

  • Premine (distributed among early investors, teams, advisors, etc.)

  • Fair distribution (everyone has equal eligibility to purchase)

Most projects use pre-mining.

Why is this approach important?

Because if TGE is 100% and 50% of the tokens are allocated to investors, then investors can sell tokens at any time, and retail investors may become the takers of exit liquidity. Here's why you need to know:

  • TGE Allocation

  • Vesting (token lock)

  • Cliff (cliff period)

Token distributions typically have the following receipt types:

  • Private sales (investors, KOLs, etc.)

  • Public Offering (Retail Investors)

  • Marketing

  • Ecosystem (stakes, rewards, etc.)

  • airdrop

How do they sell tokens?

The day the token is issued is called TGE.

  • TGE allocation is the percentage of tokens allocated to all individuals listed above (10-20%)

  • Cliff is the period after TGE and before the next Vesting

  • Vesting refers to the gradual release of a certain proportion of tokens every month

Some recent projects have adopted a method with a smaller TGE percentage (up to 20%), followed by a few months of cliff and more than 12 months of vesting.

This approach is better suited for the long-term success of the project, so it is important to verify all these details before investing.

Another key factor for any coin to be successful these days is demand. This is why projects incentivize retail investors to purchase specific tokens. For example, despite severe inflation, people still buy dollars because they need it to live.

Generally speaking, there are 4 factors that drive demand for a coin:

  • store of value

  • community driven

  • Practical effect

  • value accumulation

store of value

Cryptocurrencies can serve as a store of value. Many people buy cryptocurrencies just to put money in them, such as Bitcoin, which is often compared to gold.

community driven

As this cycle has shown the masses, communities can drive demand strongly. The rise of Memecoins is all about community. People will buy things they think they can make money from.

Practical effect

Demand is stimulated when holding a token provides some utility. For example, in order to stake tokens, you need tokens from a certain network, etc.

value accumulation

  • Incentivize stake holders

People also want the token to provide some value. This is a pledge. You can lock up your positions to receive regular rewards. This benefits all parties and is relatively low risk.

value accumulation

  • Incentive holders

Another option is to hold. Projects usually provide rewards/airdrops etc. to holders, which is good for everyone. There are many other ways to reduce selling pressure through holding:

VeToken

  • VeToken can be obtained by holding tokens

  • "Ve" stands for voting escrow, which means that by locking your tokens, you gain voting rights.

  • The longer you hold it, the more voting rights you accumulate.

Mining

  • Holding can also improve your mining efficiency

  • The more holdings, the higher the return ratio growth

Also understand that no matter how high the demand is, it is important to know who is holding it. Is it a strong community or a dumper. It's more challenging to figure this out. You need to engage with the project's community and analyze it.

Additionally, despite bad token economics, there is still the potential for a token to rise and vice versa. Always consider this possibility. Here is a list of things to check before investing:

  • Total supply and circulating supply

  • Assignment and distribution

  • Lock-up period/unlock date

  • Release percentage

  • need

After such an analysis, you can basically determine whether the project is worth investing in.

This article is reproduced in cooperation with: PANews

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