Why Do Investors Expect Growth During Token Burn?
How to understand when to buy or sell an asset based on its tokenomics?
Let's find 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 points will be.
There are 2 types of tokenomics: inflationary and deflationary:
✅ Deflationary
- the number of tokens in the offer decreases over time. This usually happens by burning (destroying) a fraction of the tokens. Or by buying back (repurchasing) tokens on the market and sending them to a non-existent address.
Example: BNB is a deflationary token with limited supply. A total of 200 million BNB are issued. Once per quarter, some of the tokens are burned. This decreases the issuance of BNB and the value of a coin becomes higher.
🔼 Benefits:
+ Increased token value. If the demand increases and the supply decreases, the price increases.
+ Motivation to hold the token. The decrease in supply encourages holders to continue holding the token as the price will rise in the long term.
+ Stable economy. No one will print an infinite number of tokens by depreciating them.
🔽 Cons:
- Reduction of turnover. The higher the deflation, the more people tend to accumulate rather than spend. This harms the economy of the project.
- There is no incentive to grow. The 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 parts are printed endlessly.
🔼 Benefits:
+ Incentives for project activity. For example, you can earn OP tokens for project activity on Optimism.
+ Rewards for early adopters.
+ Liquidity poaching. Projects can offer a high percentage of participation through rewards in their tokens.
🔽 Cons:
- Willingness to sell the token. High inflation can cause the token to constantly sell off.
- Depreciation of the asset. The increase in supply leads to a decrease in the value of a single coin.
✅ In conclusion 👇
As you can see, both models have their pros and cons. In the long term, deflationary tokens will be more valuable. In the short term, during a project's HYIP, inflationary tokens will be more valuable.
Ultimately, the success of the project will depend on a combination of factors: tokenomics, team, marketing, and market conditions.
#bnbgreenfield #crypto2023 #bearorbull
