Tokens offer three solutions which include; self-funding in the crypto economy, development and distribution of tokens within the ecosystem and increasing economic activity.
The following are some very important terms and concepts associated with token economics;
Unlike a coin, a utility token has immense functionality. Utility tokens have value as they provide profit to crypto investors, but they cannot be treated as a coin.
Tech startups sell tokens through an ICO, to investors who then use them as a means of payment on the platform created by the releasing company.
Security tokens is the security given to assist an investor with raising capital. These token offerings create a perfect blend of IPO and ICO features to provide low-cost capital while adhering to security laws.
Fungibility is the feature of the digital currency that makes it interchangeable and divisible into units. It is an attribute found in Zcash, Ether, Bitcoin and any ERC20-based tokens.
This is the opposite of the fungible tokens. They are not interchangeable and thus, can’t be replaced by any other similar token.
The upper limit on the number of tokens for an ICO/STO is referred to as hard cap. It shows the maximum amount of funds the development team is looking to collect in exchange for their tokens on the platform.
Soft Cap is the minimum amount of money crypto investors or startups need to close through ICO/IEO in order tp provide a viable product.
Total token supply
Total token refers to the total number of tokens that have been or will be created. It is usually fixed and decided before the first token is created. The total token supply may be high or restricted depending on the project.
Other concepts include; circulating supply, market cap, project fund allocation, token inflation, KYC compliance.
Token economics is an emerging topic in the crypto space and as such, offers a great platform and opportunity for investors to check the potential of every token’s success.