Introduction: fundamentals

You may find fundamentals described as “tokenomics”. Most explanations are unnecessarily complex. Fundamentals are simply the reasons to buy and sell a token. If there is more interest in buying than in selling, the price goes up, and it goes down in the opposite case.

There are many reasons, and no guide is going to cover all of them, but the main ones are easy to infer from the types of tokens.

Reasons to buy

  1. Expected profit when the price goes up.
  2. Purchase something that requires the token as a currency. Possibly the use of a blockchain in the case of gas fees.
  3. Participate in the governance of a protocol.
  4. The feeling of owning something. Think twice if this is rational, though.
  5. Participate in the crypto economy, e.g. provide liquidity.

Reasons to sell

  1. Cash out some profit, when you can, see vesting schedules.
  2. Purchase something, using as payment some currency obtained from selling your crypto.
  3. Solve the concentration of a token in a few hands and sell it for decentralization purposes.1
  4. Buying other thing that you would prefer to own, possibly other crypto.
  5. Use the money made in the crypto economy in the fiat economy, e.g. miners.

In general, tokens will need to solve some problem and provide some value to some people, for those people to have reasons to buy them. In that sense it is not unlike entrepreneurship and the creation of products. But that is a topic for another day.

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Cross-posted from the Sigmoid newsletter

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trylks

I write to have links to point at when discussing something (DRY). Topics around computers, AI, and cybernetics, i.e. anything.