Tokenomics 102: Digging Deeper on Supply

If the market cap is 10% of the FDV and the tokens are all released in the next year, the project needs to grow 10x, or 1000%, in a year just to maintain its current price. 

If you see a big difference between the market cap and FDV, that means there are a lot of tokens locked up waiting to come on the market, and you should investigate how they’re going to enter the market (3 & 4) to see if you think the current price is justified.

The big recent example of this is LooksRare. As Cobie explained in his post on the topic, half of the farming rewards were available to early investors whose tokens were still locked. So while retail investors might have been under the impression that they were earning most of the fees of the platform, they were actually going to the early investor... See more

Circulating Sup ply is where things get trickier. How many of a given token are circulating? For Bitcoin it’s easy, just subtract how many haven’t been released from the max supply and you have your number. Other L1s like Ethereum and Solana either self-report it or there are APIs available that monitor it.

2% hitting the market when 30%+ is already in circulation is a relatively small increase. The token supply will double over 15 months, but that’s more than enough time for the value of the project to catch up to the token price.

On the surface this appears to be very community oriented, because anyone can buy the tokens, create liquidity, and stake it to earn more tokens. But depending on how it’s done, this could be a subtle way for the initial team or insiders to dramatically increase their share of the tokens.

Most protocols will allocate a decent chunk of their token emissions to lp rewards. If you provide liquidity for the protocol, you can stake that liquidity to earn a steady stream of tokens.

The 35% of tokens allocated to the team and advisors are vested over 2 years, with a 6 month initial cliff. So 30% of tokens are initially unlocked, and then 35% come into the market over an 18 month period starting in month 6. So there’s approximately 2% of the supply hitting the market consistently per month for that period, then the inflation st... See more

Supply is obviously just one piece of the puzzle though. So in future pieces of this series we’ll also dig deeper on demand, game theory, ROI, and other aspects to good tokenomics worth knowing before investing or launching a project of your own.