Token Economics is Important in CryptoCurrency!

Too often in the world of cryptocurrencies we see projects who make giant blunders out the gate. The key is to try to get the token economics right from day one. One way you can improve your chances of getting it right is to study some Austrian Economics. Satoshi Nakamoto must have spent a good deal of time studying the writings of famed economists like Friedrich Hayek, Murray Rothbard and all of the gentlemen in the photo below.

During the Mania of the 2017 Bitcoin and Crypto Bull Market, Conservative Token Economics Were Forgotten.

What we saw in 2017 were projects that had massive amounts of inflation, huge supplies, and very little use cases. Recently a mathematician and ardent student of economics told me that investors and token holders would instinctively rather see higher values and lower supplies. I admit I also fell into the trap of ignoring economics in 2017 but thanks to massive losses I have returned to the principles that I learned in the Gold and Silver market.

Here Are My Top 5 Token Economics Mistakes Projects Make.

1. Huge Supply - What do you need all of those tokens for? You can accomplish the same with a minuscule supply thanks to the decimal places available in crypto. Did you know Ethereum has up to 18 decimal places? This also creates a sense of scarcity.

2. Perpetual Inflation - Why does a cryptocurrency need to have inflation? Sure Bitcoin, Epic Cash and Dash have inflation but their total supply is capped. The inflation early on in the life of these currencies is to reward the miners who secure the network. I believe Proof of Stake coins like Decred also follow sound token economics.

3. Airdrops - Projects think that airdrops are a great way to get tokens into the hands of new people. Let me tell you what really happens. The airdrop recipients dump their tokens as soon as they can, cratering the value of the token. A great example was when OBytes (formerly) Bytecoin airdropped coins to Steemit. The price immediately collapsed and has continued to drop. I feel bad for the Hodlers of OBytes. BTW, I still have my airdropped coins.

4. Token Burning - Unless it is part of a sound token economic plan, burning tokens is just a sign that the creators were overzealous in their token creation. If a utility token is burned after actions on the network then this is deflationary and is great for Hodlers. Have you ever seen a toy that was very popular for a short time and then you see it in the discount bin within a year? Yup, that is what it is like when you produce too many tokens early on. The damage will take time to overcome.

5. Listing Tokens on Exchanges that Employ Wash Trading- This trading behavior gives the economy of the token a false signal of volume. Sometimes the exchanges do it themselves and sometimes the projects hire third parties to wash trade for them. I think this practice is dishonest. It hurts the reputation of the token, the exchange, and the whole crypto market.

What CryptoCurrency Token Economics Have You Seen That Were Not Sound?

I for one want to see more projects step up and honor sound token economics!