Why are some top crypto project tokens performing poorly?

Original author: ardizor, crypto researcher

Original compilation: xiaozou, Golden Finance

Why token economics is very important:

• Good token economics: 10,000% growth in one year .
• Bad Token Economics: 90% Down in One Year.

In this article, I will openly analyze all the secrets of token economics.

Here I want to cover an important topic that can save you hundreds or even thousands of dollars. That is learning and growing from other people’s mistakes. When I didn’t understand how token economics worked, I made some terrible investments that are still down 80% from when I originally bought them.

If you do not master token economics, any investment purchase behavior is just a bet on favorable price trends. This is why you should avoid blind trading, otherwise you may suffer serious losses!

When evaluating a potential investment, on the token page we can see:

• Market Cap (MC)
• Fully Diluted Valuation (FDV)
• Circulating Supply
• Total Supply

Every one of them Both are crucial factors in making wise decisions. Here’s why:

These are called fundamental supply indicators.

Knowing these metrics can help you evaluate a coin’s potential.

It is very necessary to understand the functions of various indicators and their impact on cryptocurrency prices.

• MC: The value of the circulating supply in USD
• FDV: The value of the total supply in USD
• Circulating supply: the tokens currently in circulation
• Total supply: all possible tokens

Next, we will discuss the three main factors that determine the issuance and success of any token today:

Factor 1: Token Distribution

There are two distribution methods:

• Pre-mining – in Shared among early backers, team and advisors
• Fair launch – everyone has an equal chance to buy

In today’s market, most token allocations are pre-mined.

If 50% is allocated to investors and 100% there will be a TGE (Token Generation Event), investors may dump the tokens.

Therefore, it is crucial to understand the following points:

• TGE Allocation
• Cliff Period
• Vesting Period

The Token Generation Event (TGE) marks the moment when the token is officially released. TGE allocation refers to the proportion of tokens distributed among individuals, usually between 10-20%. Cliff is the initial span after the TGE and is the pause before the subsequent vesting begins. Vesting represents a gradual monthly distribution of a certain percentage of tokens.

Factor 2: Allocation Recipient

Common allocation recipients include:

• Airdrop
• Marketing
• Public Offering (Retail Investors)
• Private Offering (Investors, KOL, etc.)
• Ecosystem (staking, rewards, etc.)
  etc...

Lately, many projects have been adopting a strategy of moderate TGE (no more than 20%), followed by a cliff period of several months , and a vesting period of more than one year. This approach is better suited to promoting the long-term success of the project. It is important to verify these details before investing.

Factor 3: Demand
On the other hand, the prosperity of any coin must rely on demand. That's what drives people to buy. Take the U.S. dollar, for example. Even though it faces obvious inflation problems, people continue to buy it because it is essential to daily life. :

Generally speaking, there are four major factors driving demand for a token:

Factor 1: Community Support

As seen in recent cycles, a strong community can significantly drive demand. For example, meme coins skyrocket in value simply because of community support.

Factor 2: Store of Value

Many people buy cryptocurrencies to store wealth, just like investing in digital gold. Bitcoin is a classic example.

Factor 3: Token Utility

Tokens that provide practical functionality tend to attract buyers. A simple example is staking, where holding a token provides specific benefits.

Factor 4: Value Generation

People seek tokens that provide real value. Staking allows users to lock their tokens and receive regular rewards, which also benefits network growth. Additionally, holding tokens provides access to rewards, airdrops, and other incentives from the project, benefiting all parties involved.

Also, no matter how high the demand, it is crucial to know who is holding the asset. Is it a strong community, or are there short sellers? This can be difficult to determine, as you'll need to engage with the project community and conduct careful analysis. But it's definitely worth it.

Also remember this: even if the token economics are terrible, the token price can still be very high and vice versa.

Keep this result in mind! Welcome to the world of crypto, where even the most ridiculous things can come true.

Conclusion

To avoid blindly investing and getting yourself tokens you don’t need, remember to always consider the following:

• Total Supply and Circulating Supply
• Allocation vs. Allocation Recipients
• Vesting Period
• Distribution Percentage
• Demand

After careful analysis, you will be able to determine whether a project is worth investing in.

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