Why some crypto projects are top-tier but their tokens perform poorly

Author: ardizor, crypto researcher; Translation: Jinse Finance xiaozou

Why token economics is important:

· Good token economics: 10,000% growth in one year.

· Bad token economics: 90% drop in one year.

In this article, I will disclose all the secrets of analyzing token economics.

Here I want to discuss an important topic that can save you hundreds or even thousands of dollars. That is to learn and grow from other people's mistakes. I made some bad investments when I didn’t understand how token economics worked, and they are still down 80% from when I initially bought in.

Without understanding token economics, any investment purchase is nothing more than a bet on favorable price movements. That’s why it’s important to avoid blindly trading, or you could end up with serious losses!

When evaluating potential investments, on the token page we can see:

· Market Cap (MC)

· Fully Diluted Valuation (FDV)

· Circulating Supply

· Total Supply

Each of these is critical to making an informed decision. Here’s why:

These are called basic supply indicators.

Mastering these indicators can help you assess the potential of a token.

It is essential to understand the function of each indicator and its impact on cryptocurrency prices.

· MC: Value of Circulating Supply in USD

· FDV: Value of Total Supply in USD

· Circulating Supply: Tokens currently in circulation

· Total Supply: All possible tokens in existence

Next, we will discuss the three main factors that determine the launch and success of any token today:

Factor 1: Token Distribution

There are two methods of distribution:

· Pre-mine - shared among early backers, team, and advisors

· Fair launch - everyone has an equal opportunity to buy

In today’s market, most token distributions are pre-mined.

If 50% is distributed to investors, and 100% will have a TGE (Token Generation Event), investors may sell tokens.

Therefore, it is crucial to understand the following points:

· TGE Distribution

· Cliff Period

· Vesting Period

The Token Generation Event (TGE) marks the moment when the token is officially released. TGE distribution refers to the proportion of tokens distributed among individuals, usually between 10-20%. Cliff is the initial span after the TGE, which is the pause period before the subsequent vesting begins. Vesting means gradually distributing a certain percentage of tokens every month.

Factor 2: Allocation Recipients

Common allocation recipients include:

· Airdrop

· Marketing

· Public sale (retail investors)

· Private placement (investors, KOL, etc.)

· Ecosystem (staking, rewards, etc.)

And so on…

Recently, many projects have been adopting a strategy of a modest TGE (no more than 20%), followed by a cliff period of a few months, and a vesting period of more than a year. This approach is better suited to promote the long-term success of the project. It is very important to verify these details before investing.

Factor 3: Demand

On the other hand, the prosperity of any token must rely on demand. This is what drives people to buy. Take the US dollar as an example. Although it faces obvious inflation problems, people continue to buy it because it is indispensable for daily life. :

Generally speaking, there are four major factors that drive demand for tokens:

Factor 1: Community Support

As seen in recent cycles, strong communities can significantly drive demand. For example, meme coins have skyrocketed in value simply because of community support.

Factor 2: Store of Value

Many people buy cryptocurrencies to store wealth, like investing in digital gold. Bitcoin is a classic example.

Factor 3: Token Utility

Tokens that provide utility tend to attract buyers. A simple example is staking, where holding a token provides a specific benefit.

Factor 4: Value Generation

People seek tokens that provide real value. Staking allows users to lock up their tokens and receive rewards regularly, which is also good for network development. In addition, holding tokens can access rewards, airdrops, and other incentives from the project, benefiting all parties involved.

In addition, no matter how high the demand is, it is crucial to understand who is holding the asset. Is it a strong community, or are there shorts? This can be difficult to determine because you need to engage with the project community and perform a careful analysis. But it is definitely worth it.

Also remember this: even if the token economics are bad, the token price can still be very high, and vice versa.

Keep this result in mind! Welcome to the world of crypto, where even the most ridiculous things can come true.

Conclusion:

To avoid blindly investing in tokens you don’t need, remember to always consider the following factors:

· Total Supply and Circulating Supply

· Allocation and Allocation Recipients

· Vesting Period

· Distribution Percentage

· Demand

After conducting a careful analysis, you will be able to determine whether a project is worth investing in.