Token Economics

Tokenomics, the study of token supply dynamics, distribution, and value accrual, is one of the most important factors in crypto asset analysis. Supply changes directly affect price: new tokens entering circulation create selling pressure, while burns and locks reduce it. Understanding these dynamics lets you estimate dilution risk, identify overvalued or undervalued tokens, and anticipate price-moving unlock events.

Why Tokenomics Matters

Price is a function of demand and supply. In crypto, supply is programmable and constantly changing:

• A token inflating at 50%/year needs 50% demand growth just to maintain price
• A large unlock releasing 10% of circulating supply in one day often causes 5-20% drawdowns
• Tokens with >80% of supply locked have extreme dilution risk ahead
• Protocols that burn fees can become net deflationary, creating structural price support

Key Supply Concepts

Total Supply vs Circulating Supply

total_supply      = maximum tokens that will ever exist (or current total minted)
circulating_supply = tokens currently available for trading
locked_supply     = total_supply - circulating_supply
circulating_pct   = circulating_supply / total_supply * 100

Market Cap vs Fully Diluted Valuation

market_cap = price * circulating_supply
fdv        = price * total_supply
fdv_mcap_ratio = fdv / market_cap

The FDV/MCap ratio measures future dilution risk:

FDV/MCap	Dilution Risk	Interpretation
1.0-1.5	Low	Most supply already circulating
1.5-3.0	Moderate	Significant supply still locked
3.0-5.0	High	Majority of supply not yet released
>5.0	Very High	Token will face massive dilution

Net Inflation Rate