Tokenomics Show: Evaluating Market Cap, Vesting Schedules & Regulatory Standards
Featuring Kyle Chasse & Roderick McKinley
Kyle Chasse, CEO and Founder of Master Ventures and PAID Network has always been passionate about people understanding tokenomics. April’s Tokenomics Show featured in-depth discussions with Roderick McKinley, an expert in token economics. He shares valuable insights on vesting schedules, fully diluted valuation, market cap, regulatory standards, token models, and more.
Below is a summary of the show, broken down into key questions and answers.
Watch the full video here:
What is the difference between a project with 17 billion tokens and one with 5 million tokens?
Instead of relying merely on the number of tokens in circulation, evaluating a token’s value by its market cap is much more revealing. It’s helpful to compare a cryptocurrency’s relative worth against other well-known commodities for further insight into its actual level of value. For instance, Bitcoin has an impressive $530B market cap, ETH — $223B, ADA — $13.5B and XRP — $23.9B (as of 24 April 2023). For comparison, the market caps of gold are $13.2Tn, Apple $2.6Tn, Microsoft $2Tn, Tesla $503bn and Ford $48B, respectively. Who would have thought a few years ago Bitcoin would be 5x Ford.
Why is understanding token economics so important?
Token economics is an essential crypto component and deserves close attention. From token models to vesting schedules, the details involved can help investors make informed decisions by revealing a project’s viability and chances of success.
Let’s consider the token economics of Ethereum, one of the most popular blockchain projects. Ethereum has a fixed maximum supply of 18.5 million Ether (ETH) yearly, distributed through mining rewards. Transaction fees paid in ETH are burned, creating positive deflationary pressure on the token’s supply.
Deflationary pressure occurs when a currency or asset experiences a decrease in overall supply, increasing its value. With ETH, the burning of transaction fees reduces circulation, leading to a decline in the overall supply of the token and creating deflationary pressure that may increase its value or purchasing power.
Furthermore, the Ethereum network previously used a Proof-of-Work (PoW) consensus algorithm that required significant computational resources to validate transactions and create new blocks.
With Ethereum’s switch to a Proof-of-Stake (PoS) consensus algorithm, Ethereum’s tokenomics changed significantly. Instead of miners competing to solve puzzles, the network relies on validators who stake their ETH to secure the network and earn rewards. This shift towards PoS has several implications for tokenomics, such as changing the incentives for network participation, altering the supply of ETH, and potentially affecting the token’s price and market capitalization.
Understanding these factors can help investors evaluate the potential long-term value of the ETH token and the viability of the Ethereum network as a whole. Additionally, by examining the token distribution among stakeholders and the governance mechanisms in place, investors can gauge the potential for decentralization and community involvement.
What is a vesting schedule?
A vesting schedule is a way to keep investors loyal to the project and ensure they don’t sell off their tokens too quickly. It establishes incentives for team members, devs and investors including Venture Capital funds (VCs) by distributing their releases of tokens over time, usually spanning four years with an initial one-year cliff period before any can be released. The model prevents sudden large selloffs while motivating users to retain their tokens.
What does fully diluted valuation versus market cap mean?
When evaluating the value of a blockchain company, it’s crucial to consider its fully diluted valuation, which considers all outstanding tokens or coins, including the unreleased ones. These tokens represent a potential source of dilution, which may affect the value of the existing tokens and the overall market capitalization of the blockchain company.
Market capitalization is calculated by multiplying the current token price by the number of tokens in circulation. However, it only reflects the value of the circulating and not the total supply of tokens a project has. This is where Fully Diluted Market Cap (FDV) comes into play.
FDV estimates the market cap if all the tokens in a project were in circulation, providing a prediction of the crypto’s potential market cap. Understanding FDV can help to identify any hidden value within the organization and provide a more informed comprehension of a blockchain project’s potential worth.
Are there different token models, from utility to security tokens?
Depending on the interest or type of blockchain entity or business, they can choose from three distinct token models: utility tokens offering access to products or services, security tokens representing corporate ownership privileges and governance tokens enabling their holders to influence a project’s decisions.
What regulatory standards would you like to see in the industry?
There is a need for clear regulatory guidelines in the crypto industry to protect investors and promote innovation. Self-regulation and industry-wide standards could be effective in promoting best practices. This is where founders like Kyle Chasse, who have been in the space for many years, see they have a responsibility to pioneer self-regulation to drive greater adoption and participation.
How can we assess the viability of a project?
Assessing a project’s viability requires understanding its token economics, team, technology, and community. The crypto community must consider the token model, vesting schedule, and regulatory compliance. Conducting due diligence and researching the project’s reputation and track record can also provide valuable insights.
As the crypto industry grows, it is essential to remain informed of token economics and its various components. Participants in the cryptocurrency industry must take their due diligence seriously by assessing a project’s prospects for success based on factors like vesting schedules, market cap, regulatory compliance standards, and more.
Keeping up with the ever-changing landscape helps foster innovation while safeguarding those investing in cryptocurrency from any potential risks in an increasingly competitive space.
PAID Network seeks to redefine the current business contract, litigation, and settlement processes by providing a simple, attorney-free, and cost-friendly DApp for users and businesses to ensure they #GetPAID wherever they are in the world.
PAID technology leverages Astar to operate on both Ethereum and Polkadot ecosystems. PAID makes businesses exponentially more efficient by building SMART Agreements through smart contracts in order to execute DeFi transactions and business agreements seamlessly.
DISCLAIMER: The information provided in this article is for educational and informational purposes only and should not be construed as financial advice. Investing involves risk, and past performance is not indicative of future results. The author of this article is not a licensed financial advisor and does not guarantee the accuracy or completeness of the information provided. Readers should consult with a licensed financial advisor before making any investment decisions. It cannot be treated as legal, financial, or professional advice of any kind. The author of this article assumes no liability for any investment losses incurred by readers as a result of using the information provided.
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