As you’ve probably already guessed, Tokenomics is a hash of Token and Economics. Every cryptocurrency has its own specific tokenomics. Generally speaking, tokenomics refers to a projects’ supply and demand characteristics, and the economics of a project. Tokenomics should be thought of as an umbrella term, with topics such as supply, distribution, token tax and buy back and burn sheltering underneath it.
In the same way that central banks have rules on how a fiat currency’s price is controlled, tokenomics applies controls to cryptocurrencies. Project core teams carefully plan how the tokenomics will work over both the short and long term to ensure the overall sustainability of the project.
Under the umbrella:
Supply: Tokens on the Binance Smart Chain, which is where Y-5 exists, are controlled by smart contracts. The smart contract controls the tokenomics of the project. In order to have tokens to exchange and trade, they must first be bought into existence. This is achieved by minting. Minting happens during the deployment of the smart contract to the blockchain. You can choose any number of tokens to mint when the Smart Contract is deployed.
The Max Supply (MS) of tokens is the maximum number of tokens that will ever exist.
The Circulating Supply (CS) is the number of tokens that are currently tradable.
Y-5 Wealth token has a Max Supply of 1 quadrillion (1,000,000,000,000,000), a relatively standard number for projects in the BSC space. However, the circulating supply is at time of writing around 750 billion. One quarter of all tokens are either burned (see below) or in locked wallets which are unable to be traded.
Distribution: Quality cryptocurrencies projects try to create an equal playing field. There will always be investors with a large number of tokens as well as investors with smaller bags. However, ensuring that projects are not whale heavy is an important factor for the security of smaller investors. Below are some questions to consider when researching tokenomics:
- How were the tokens initially distributed to the earliest holders?
- What percentage of tokens are owned by the developers and core team?
- Are there any large wallets that can cause significant price manipulation?
- Are there locked up tokens that cannot be sold?
Remember, everything that happens on the blockchain is publicly available data, therefore, it is possible to see the current distribution of all Y-5 tokens.
Token Tax: Some projects have a token tax that allows the project to create passive income in addition to dwindling the supply of tokens over time. This is achieved by taking a percentage of every buy and sell transactions. These taxes give the project revenue to allow it to market effectively and ensure its liquidity pool is replenished.
Using Y-5 Finance as an example; Y-5 Wealth Token takes a 20% tax off of each transaction. This tax then gets divided between several wallets: 13% goes towards BUSD rewards for the investors. 4% goes to Buyback and Burn, 2% to Marketing and 1% to the Liquidity Pool.
Rewards: It’s become fashionable on the Binance Smart Chain to rewards loyal holders with passive income. The amount of passive income generated depends upon two key metrics: number of tokens held and amount of daily volume. The higher of each metric, the more you would earn. This passive income, over time, is likely to pay back the initial investment while everything else being profit thereafter. BuyBack and Burn: Deflationary tokens, such as Y-5, nearly always have BuyBack and Burn (BBB) built into the project tokenomics. This is one of the major ways to create a constantly contracting circulating supply. This is achieved through profits from the project utilities.
The process is simple: say Utility A makes $1,000 every day for 1 week. At the end of the week, there will be $7,000 in the BBB wallet. That $7,000 is then traded for Y-5 tokens (raises Market Cap and Daily Volume), and then those Y-5 tokens are sent to the dead wallet (raises MC), where they will stay forever, irretrievable.
As the project grows, and BuyBack and Burn continue, as circulating supply dwindles, the amount that 1 Y-5 token will be worth will increase from fractions of a cent to closer to $1.
Every project is different; some are inflationary and some deflationary. Some give rewards, some do not. Some burn huge amounts of tokens while some constantly mint more. It’s a minefield out there. Being able to look into the specific tokenomics of a project can give some solid data about the foundations on which it was built. Ultimately, poorly constructed tokenomics can lead to a project tanking and an eventual loss of initial investment. Be careful out there, do your research and if you need any further questions in relation to Y-5 Finance generally or its tokenomics, you can always ask our moderators, 24h a day on Telegram and Discord.