¿What is tokenomics?

tokenomics

 

Don't worry if this is the first time you've heard of this concept. Actually, it is very new because it refers to a type of economy that has become fashionable in recent years, that of the token. It is directly related to blockchain technology and asset tokenization.

So, in this post we are going to delve into the term tokenomics, its characteristics and functionalities. Can you come with us?

Definition of tokenomics

We move to the heart of decentralized finance (DeFi) to talk about tokenomics. It is a type of economy that emerged as a result of the tokenization of things and blockchain technology (chain of blocks) supported by tokens. These are digital assets that represent real assets, such as a property, a piece of art, a car or anything else you can imagine. Therefore, it has the function of representing a real asset in the digital world, it is created on top of a blockchain and is governed by a smart contract.

The token economy is a very interesting concept and so powerful that it could change the economic system in which the world works. And all thanks to the characteristics that constitute it.

 

5 differentiating features of tokenomics

Just as the traditional economy does not work without the administration of goods and services, a system and price inflation stability, the token economy also does not work without blockchain technology, community, distribution, dynamism and governance. We are going to explain in great detail what each of these characteristics consists of:

  • Blockchain technology

Without blockchain there are no tokenomics, a fact that opens up new and unexplored possibilities in the development of the economy. The blockchain is the tool that enables the decentralization that the token economy demands. Why? Because it generates a decentralized and distributed database with which to record value transactions between many computers.

  • Community

Without community, there is also no token economy. When a revolutionary phenomenon like tokenomics has the support of the public, its development is more growing and stable, as well as its thrust and presence in society. If it were not for the reception that cryptocurrencies have had in the public, their operation and evolution would not have been possible.

  • Distribution

When we have an audience interested in the token economy in any of its applications (cryptocurrencies, debt tokenization, digitization of works of art, etc.), it is easier to promote its use. However, we can only achieve this through the distribution of digital assets so that the community can use them. Mining is one of the most popular practices to achieve such distribution.

  • Dynamism

In addition to keeping the prices of the token economy stable, there is another even greater challenge, that of economic dynamism. That is, the development and promotion of a certain behavior in the public. To achieve this, tokenomics focuses on the flow of digital assets and monetary policy.

  • Governance

The token economy is subject to a series of rules in the development and maintenance of the network that can vary from chain to chain. For example, Ethereum works under a decentralized government, without a central authority, thanks to the intervention of the public, but there are other networks with different rules on the use of the token in question.

In addition to these characteristics, the token economy must have real-world utility, because an initiative that brings value to the user is an initiative worth investing in. Remember it!

 

Token economy use cases

What began as a cryptocurrency under the initiative of Satoshi Nakamoto back in 2008 has now become the cradle for the development of new use cases for the token. Hence, we are no longer just talking about Utility Tokens, but also about Security Tokens, Equity Tokens and Governance Tokens.

All of these are fungible tokens, since they allow goods or services and stores of value to be exchanged, but there are also non-fungible tokens, which allow real-world objects with unique qualities to be represented on a blockchain through a smart contract. Take an example of a work of art.

In general, those tokenomics initiatives that manage to improve some point of society also achieve a clear impact in the real world that allows the tangible to be transferred to the digital world. How is it possible? Tokenizing it and allowing the public to interact with it in a way we could never have imagined.

 

The myths of tokenomics

The token economy works for a very simple reason: the community of token users and investors have realized that these assets can help them build a much more sustainable economic ecosystem.

However, to understand the token economy in depth, it is important to dispel some of its most popular myths:

  • People tend to confuse token with cryptocurrency. They are not the same, since a cryptocurrency is a token, but a token does not necessarily have to be a virtual currency. These are born in their own accounting books or blockchains, but the tokens are digital assets that require another blockchain platform not their own for their operation.
  • The purpose of the token and the cryptocurrency is not the same. A virtual currency can be used as a means of payment in decentralized applications, working as a Utility Token. With them, you can make quick and instant payments at a low cost, avoid transaction fees and send money anywhere in the world in a matter of minutes. The utilities of the token are much broader, but its main function is to govern a business model, empower the user to interact with its products and facilitate the distribution of benefits among the participants.

Now that we have reached the end of this post, it is time to answer all your questions about how tokenomics or the token economy works. At HauxT, we will be happy to help you.

 

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