0 minsPublished on 8/2/2024

Tokenomics

By Geoffrey Lyons

Tokenomics (“token economics”) refers to the design of a cryptocurrency that encompasses aspects like supply, allocation, and utility. 

There are tens of thousands of cryptocurrencies and they all work in different ways. Bitcoin has a fixed supply of 21 million whereas Ethereum has no supply cap. Solana allows token holders to nominate validators (those who verify transactions), whereas many cryptocurrencies don’t even have validators.

Broadly speaking, these cryptocurrencies have different tokenomics

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Whitepapers

Usually a cryptocurrency’s tokenomics are laid out in a blockchain’s whitepaper, a short document that outlines the project’s:

Vision

The ultimate aim of the project

Technical details 

How things will work under the hood

Early sale info

How tokens will be distributed

Some whitepapers just focus on one of these elements. Solana’s whitepaper, for example, focuses mainly on the project’s technical details.

Comparing tokenomics

Supply (amount of tokens)

Bitcoin
Max supply 21M

Ethereum
No supply cap

Solana
No supply cap

Utility (a token’s primary use cases)

Bitcoin
P2P exchange

Ethereum
P2P exchange, pays network transaction fees

Solana
P2P exchange, pays network transaction fees

Burning (removing tokens from circulation) 

Bitcoin
No tokens burned

Ethereum
Small amount burned every transaction

Solana
50% of each transaction fee burned 

Allocation (how tokens are distributed at launch)

Bitcoin
Only obtainable through mining or P2P exchange

Ethereum
Crowdsale (83%), early contributors (8.5%), and Ethereum Foundation (8.5%)

Solana
Team, foundation, and community reserve (63%), four private sales (35.4%), one public sale (1.6%)

Staking (locking tokens to support network operations)

Bitcoin
Cannot be staked

Ethereum
Staked to secure the network

Solana
Staked to secure the network

Governance (power of token holders to govern blockchain)

Bitcoin
Fully decentralized, so changes happen only if vast majority of participants agree

Ethereum
Governance happens off-chain by a variety of stakeholders

Solana
Governance happens on-chain through community of validators

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Geoffrey Lyons
Written byGeoffrey Lyons