Tokenomics Glossary
Welcome to our little corner of the crypto universe – the Tokenomics Glossary. If you’ve ever found yourself scratching your head over terms like ‘staking’, ‘liquidity pools’, or ‘deflationary tokens’, you’re in the right place.
We’ve put together this handy collection of terms and phrases that you’ll often hear in the buzzing world of crypto and blockchain. It’s not just a list of definitions; think of it as your friendly guide through the maze of crypto jargon. Whether you’re just starting out or you’re the one explaining how blockchain works at parties, we’ve got something for everyone.
The list is sorted alphabetically:
Airdrop: An airdrop in cryptocurrency refers to the free distribution of new tokens directly to the digital wallets of active participants in a blockchain network. This method is often used for allocation distribution, aiming to enhance token circulation and promote project awareness. Recipients are usually required to hold / stake a certain amount of existing tokens, perform specific promotional activities or interact on-chain (testnet - live). Automated Market Maker (AMM): Automated Market Makers (AMMs) are decentralized platforms enabling the trading of digital assets through algorithm-driven liquidity pools, rather than traditional order books. These platforms use a set of mathematical formulas to price assets, allowing users to trade directly with the pool, which simplifies and automates the process of buying and selling cryptocurrencies.
Blockchain: A blockchain is like a digital ledger, but it's spread across a network of computers. Each 'block' in the chain packs in data, sealed with cryptography. This setup is super secure – once something's in there, it can't be changed or deleted. It's the backbone of cryptocurrencies like Bitcoin, but it's not just about digital money. Blockchain's also shaking things up in areas like digital art with NFTs and even in creating trusty contracts without the middlemen. It's all about making transactions transparent, secure, and decentralized.
Cliff Period: The cliff represents a predetermined duration during which token recipients must wait before they begin receiving their allotted tokens. This “lockup” time precedes the actual vesting schedule and is commonly used for groups like the project team, foundation, and early investors from seed or private sales.
Howey Test: determines if a transaction qualifies as an investment contract, requiring: investment of money, profit expectation, common enterprise, and reliance on others' efforts. Its application to cryptocurrencies remains contentious, with varying opinions on their compliance.
ICO (Initial Coin Offering) is a fundraising method in the cryptocurrency sector, similar to an IPO, where companies raise capital to fund new projects by issuing digital tokens.
Initial Circulating Supply: denotes the number of tokens that are available and circulating in the market immediately after a project’s launch or list their token. It can also be referred to as the tokens circulating at the Token Generation Event (TGE).
IPO (Initial Public Offering) is when a private company offers shares to the public for the first time to raise capital.
Supply Shock: in cryptocurrency occurs when there's an abrupt increase in the number of tokens available, disrupting the market's supply-demand balance and often leading to a rapid decrease in token value.
Security Token Offering (STO): is a regulated blockchain initiative that offers digital tokens representing real-world assets, such as equity or property. It merges traditional investment compliance with blockchain's efficiency, providing a secure, legal framework for digital fundraising.
Tokenomics: Tokenomics encompasses the study and design of a token's economic system, focusing on its supply and demand dynamics, incentive structures, and behavioral mechanisms within a blockchain environment. It involves programming specific characteristics into the token, such as distribution strategies, allocation, and utility, to influence user behavior and achieve desired outcomes. The transparent nature of blockchain technology allows for the observation and analysis of all transactions, making tokenomics a crucial aspect in understanding and predicting the performance and sustainability of a token in the crypto ecosystem.
Token Generation Event (TGE): This marks the specific date when a project introduces its token on an exchange, be it centralized or decentralized. It’s the inaugural moment when investors and other stakeholder groups can potentially have tokens unlocked for their use.
Token Inflation: refers to the increase in the circulating supply of a token over time, leading to a reduction in its purchasing power due to more tokens being available.
Token Unlocks: occur when a portion of a cryptocurrency’s total supply becomes available for trading. This can lead to supply shocks that can affect the price of the coin or token.
Variable Supply Token (VST): refers to a cryptocurrency model where the total quantity of tokens can change over time, based on predefined rules or governance decisions. This flexibility allows for adjustments in supply to meet evolving economic needs or game dynamics. VSTs are often used in gaming and blockchain projects to maintain economic balance and adapt to changing market conditions.
