choosing the right project to invest in?

Today there are many places to buy NFT collections and other tokens, but we do not recommend purchasing crypto assets just because of the beautiful picture. To make real profits from owning such crypto assets, you should study tokenomics to understand how thoughtful this project is and whether you should fund it. Today we want to talk about tokenomics and what points you should pay attention to in the first place.

Tokenomics: what is it?

The meaning of this term is easy enough to guess from the name. This word consists of two parts – token and economy. Thus, tokenomics is the economy of a token, its value, and supply. Any crypto business has many risks, so you should carefully study all the indicators before investing in a project. Tokenomics is often a strong indicator for NFT collections.

If you have a project with inaccurate tokenomics in front of you, you should not pay much attention to it, as it will not be able to bring you income.

Key elements to pay attention to

It would be best to consider many factors to understand whether it is worth investing in a project. We want to draw your attention to the most important of them.

Number of tokens

The crypto ecosystem is designed so that most tokens have a limited number. So, the number of Bitcoin tokens is only 21 million (the next one is planned to be added only in 2140), while Solana tokens are already 508 million. At the same time, Ethereum does not have such a limitation.

If the project is successful, the limited number of tokens can lead to a relatively rapid increase in value. At the same time, if fewer tokens are on the market, you will not be able to make real profit, even if it is trendy.

If you want to buy an NFT collection, you should know how many tokens they plan to release at all stages. Many artists release tokens in series. NFTs from the first series are usually limited, and the demand for them is higher, which means that if you become a happy owner of such tokens, you can get a good income from selling them. That is why many investors try to invest in the first stages of collection development because if successful, this can bring good profits.

Consensus mechanism

It is the process by which blockchain and cryptocurrency transactions are secured and verified. The main consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS).

The first option involves mining, where specialists use special computers to create new tokens.

In the second case, staking is used. In this format, validators must lock up their assets to receive additional tokens. In general, it is very similar to a deposit in a bank.

Practice shows that mining brings more profit but requires expensive special equipment and skills. In the case of staking, the income will be less but more stable. Many investors use this to get a regular additional income.

This section of tokenomics is of great importance for fungible tokens but needs to be considered when choosing an NFT.

Distribution and placement of tokens

It is crucial to understand how you will be able to distribute these tokens. There are two ways to get tokens – buy them or get them from mining or staking.

So, it would help if you evaluated how easy it will be for you to get tokens and where you can resell them. Today there are many marketplaces where you can get and sell tokens.

In the case of fungible tokens, you can use various centralized and decentralized platforms such as Binance or Uniswap. If you want to invest in popular tokens that have been on the market for a long time, you will likely not have any problems. But, if you are planning to invest in a new project, it is worth making sure that the creators have the opportunity to list them on popular exchanges.

If you are interested in NFTs, there are many popular platforms today where you can buy them and then resell them – OpenSea, Rarible, SuperRare, and others. Here you can resell them when the need arises.

Scope of use

It is crucial to understand where and how you can use tokens. Today many functional tokens can be used to pay for goods and services, give access to some communities, and be used in games or collectibles.

When NFTs first appeared, they had only one function – collecting, which is okay. However, many users wanted to be more satisfied with this approach. Over time, various functional tokens began to appear that give access to multiple resources, which can be used as domains or land in the metaverse.

For example, planetex.io is a large ecosystem that is currently under development. In the first stages, it was decided to create NFTs, which can later be used as avatars in a P2E game. The release of such tokens allows developers to receive income for the project’s further development. If you buy these NFTs initially, you can profit after reselling them when the project is successful or use them to further interact with the ecosystem.

Burning tokens

It is a process in which tokens are wholly removed from use. It is achieved by sending them to a wallet with the wrong address. It allows you to balance the supply and demand of tokens. This format is often used in gamefi, where the game generates new tokens according to a particular scenario, and unrealized tokens are burned.

If the burning of tokens does not occur, and the system continues to generate them, this negatively impacts the value of such crypto assets.

What tools are used to stabilize the price?

Some tokens need more tools to stabilize their value. In this case, the price is formed by consumer demand. However, tokens, such as stablecoins, have a specific peg to physical assets (fiat currencies, gold, oil, and others), which allows the price to stabilize.

Why is tokenomics so important?

Every day, many startups appear on the market seeking to develop in the blockchain industry. However, practice shows that only 10% of such projects are successful and have existed for more than 5 years. It leads to the fact that you, as an investor, should carefully study the project before investing in it to ensure that you can make real profits in the future.

Many investors invest money intuitively, relying solely on the emotions they get from communicating with the project’s founders. However, the analysis of tokenomics allows you to get acquainted with real numbers and facts that can be used to build a personal forecast. When it comes to money, you need to be quite pragmatic.

The blockchain industry appeared relatively recently and is now actively developing. Today there are a considerable number of enthusiasts who want to become successful here, but at the same time, they need more knowledge and skills to put their theory into practice. A well-thought-out tokenomics indicates that specialists understand what they are doing and what results they want.

At the end

Practice shows that investments in the crypto industry can bring a considerable income, but you need to act carefully because this is associated with many risks. Studying tokenomics will allow you to identify these risks, find vulnerabilities and assess whether this project can be successful and how much profit you can make. Usually, at the initial stage, the cost of tokens is relatively low; recall that the price of bitcoin in 2009 was only 1 USD, and the maximum it reached was 69,000 USD apiece. If you recognize a worthwhile token, you can make huge profits, but this can only be done with a detailed analysis of tokenomics.