Tokenomics 101: The Basics of Evaluating Cryptocurrencies - DeFriday #19

Some tokens allow you to tap into the earnings of the protocol they represent. If you hold SUSHI, you can stake it to earn a share of the Sushi protocol revenues, currently for about a 10.5% APR.

ROI in this case is not how much you think the token price will go up. It’s how much income or cash flow the token is able to generate for you simply by holding it.

So while it’s tempting to be purely analytical, don’t discount how far a token can get with faith, clever memes, and a cult-like following. 

Belief in future value is often one of the most powerful drivers of demand. Bitcoin has no cash flow, no staking rewards, nothing. It just has the belief that it could be a long term store of value to rival gold. Or more ambitious beliefs like definancialization and hyper-bitcoinization. But it’s all beliefs at the end of the day.

For example, if you hold Ether you can stake it to help secure the network once Proof of Stake launches. In return for Staking your ETH, you get paid in more ETH, at a rate of about 5%.

Based on supply alone, should I expect this token to hold or increase its value? Or will that value be inflated away?

On the supply side, a token will increase in value if fewer of those tokens exist—we call that deflation. A token will decrease in value if more of them exist—that’s inflation. When you’re evaluating the supply side you don’t have to worry about things like whether the token has any utility, or whether it will generate income for its holders. You’r... See more

There will only ever be 21,000,000 bitcoin, and they’re released at a rate that gets cut in half every four years or so. Roughly 19,000,000 already exist, so there are only 2,000,000 more to be released over the next 120 years.

By reading the docs or whitepaper, you should get a good sense of how the supply is going to be managed, and what forces will drive demand for the token or cryptocurrency.