In our last piece, we’ve shed light on the demand side of tokenomics. We’ve looked into the buying point, meta demand, and market analysis to see what influences a token’s demand, and hence influences its price.
We want to take this a step further now by looking at tokenomics more comprehensively.
Supply and demand are often analyzed separately. This tends to overlook the connection between supply and demand, leading to an incomplete picture. We call our more comprehensive approach token flow analysis.
Apart from supply and demand, tokenomics can be seen as the design of the flow of tokens e.g. distribution determines how many tokens flow to whom. If too many tokens flow to investors, there might be selling pressure. Utility determines under which condition tokens flow from users to other parts of the ecosystem, which is key to keeping tokens within the ecosystem.
Generally, these flows can be represented as follows:
The model consists of the following components:
Flows: token inflow into the ecosystem, token outflow out of the ecosystem (to the secondary market), and the inside flow of the token within the ecosystem. If too many tokens flow out of the ecosystem, it will probably create selling pressure.
Ecosystem is where the product, stakeholders, tokens and other components of a specific project interact with each other.
Supply origin is the origin of the token and the start of the token flow. It includes the genesis release (how many tokens will flow at the beginning), periodical release and distribution (how many tokens flow to whom in a given period) etc.
Incentivization is attaching a reward to a desired behavior. The reward is the tokens and might come from supply origin or reserve or treasury.
Stakeholders include investors, advisors, users, holders and project team members. Different stakeholders tend to behave differently within the ecosystem. For example, investors are more inclined to sell tokens early rather than hold and use them, as ultimately, they need a return on their investment.
Hold can be defined as when stakeholders will not sell tokens on the secondary market. This is a favorable action for the ecosystem so it’s classified as separate behavior within the ecosystem**.** People hold in anticipation of price appreciation, and hold is one of the two inside flows that are initiated by stakeholders.
Utility of a token like staking, governance, payment etc. is one of the two inside flows that are initiated by stakeholders.
We will mainly use the play-to-earn game Axie Infinity’s SLP token to conduct the analysis, answering three main questions: