📊 How to analyze tokenomics and earn even more?

Why do investors expect growth during token burning? How to understand when to buy or sell an asset based on its tokenomics? Let's figure it out once and for all 👇

Tokenomics is the economics of tokens and their application in a project. By understanding tokenomics you can predict where the best entry and exit point will be.

There are 2 types of tokenomics: inflationary and deflationary:

✅ Deflationary - the number of tokens in the supply decreases over time. This usually happens by burning (destroying) a fraction of the tokens. Or by redeeming (buyback) tokens from the market and sending them to a non-existent address.

Example: BNB is a deflationary token with limited supply. A total of 200 million BNBs are issued. Once a quarter, a portion of the tokens are burned. This decreases the BNB issue and the value of one coin becomes higher.

🔼 Pros:
+ Increase in token value. If demand goes up and supply goes down, the price goes up.
+ Motivation to hold the token. Decreasing supply encourages holders to continue to hold the token because the price will rise in the long run.
+ Stable economy. No one will print an infinite number of tokens by depreciating them.

🔽 Minuses:
- Reduced turnover. The higher the deflation - the more people tend to accumulate rather than spend. This hurts the economy of the project.
- There is no incentive to develop. Destroyed tokens could be distributed among the most active part of the community and stimulate various activities in the project.

✅ Inflationary - the total number of tokens increases over time. New tokens are issued through mining (BTC), stacking (ETH), farming (OSMO) and other activities.

Example: Dogecoin has an inflationary model. New coins are infinitely printed.

🔼 Pros:
+ Incentives for project activity. For example, you can earn OP tokens for project activity on Optimism.
+ Rewards for early users.
+ Liquidity poaching. Projects can offer high % on staking through rewards in their tokens.

🔽 Minuses:
- Willingness to sell the token. High inflation can cause the token to be sold all the time.
- Impairment of the asset. Increased supply leads to a decrease in the value of a single coin.

✅ Conclusion.

As you can see both models have their advantages and disadvantages. In the long run, deflationary tokens will have more value. In the short term, during a project's HYIP, inflationary tokens will have more value.

Ultimately, the success of the project will depend on a combination of factors: tokenomics, team, marketing and market conditions.

📌 Save it so you don't lose it!