Why Crypto investors should care about Tokenomics: Crypto long & short

Why Crypto investors should care about Tokenomics: Crypto long & short

Time Stamp: August 16, 2023 2:48 PM
Why Crypto investors should care about Tokenomics: Crypto long & short PlatoBlockchain Data Intelligence. Vertical Search. Ai.

One aspect of tokenomics that is particularly important for investors who exit the heavily traveled digital asset highway of bitcoin and ethereum to take the scenic altcoin backroad is token issuance. Issuance is typically done to raise capital for various purposes, such as funding expansion, reducing debt or investing in new projects.

When a project issues new tokens, digital asset investors need to consider the following:

Related to the two factors above, we must also consider the asymmetric information and agency problems between protocol development teams and token holders. Like traditional corporate management teams, protocol teams have private information and a potentially more realistic outlook for their projects than later-stage token holders. As investors in the secondary market, we should assume protocols are subject to “managerial market timing.”

Managerial market timing refers to project insiders, particularly founding team members, making token transactions based on their perception of the protocol’s token price movements. For instance, if insiders believe their protocol’s token is undervalued and set to rise, they might increase their holdings. On the other hand, if they anticipate a decline in the token’s price, they might decrease their holdings. As digital asset token markets continue to be shrouded in regulatory uncertainty, investors need to be aware of the actions of the protocol’s founding team, especially if it seems to be in conflict or misaligned with the project’s whitepaper or long-term road map.

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