Before we start, CONGRATULATIONS to those who have always believed in the vision of the ecosystem, It has been a W week for all of us with the Ripple vc SEC case win! More on this in our weekly newsletter, “Decoded by Descrypt” on Wednesday 🚀🤝
The market is deeper and more diverse than ever with “x” protocols and “x+x” tokens. With tons of great teams, great projects and not-so-great rug pull projects out there, try searching for “airdrops” and “Tokenomics” on Twitter and you’ll get a glimpse of the black hole.
With that comes the tax implications of different project investments that you might have done, Questions like how are rebasing tokens taxed, capital asset vs income, staking taxes, multichain bridging, NFTs taxes are already pretty complicated but that shouldn’t be a deterrent and thus, we have built the SIMPLEST crypto taxation tool which auto-Sync Across 30+ exchanges and on-chain wallets and generated the most accurate tax reports in minutes.
There’s much more that differentiates projects and makes you WAGMI (bullish) and NGMI (bearish) on it. Still, I’m sure once an investor/ user decides to support the project, go out there and cash on some $TOKENS - you wouldn’t like to miss on the tokenomics in simple terms refers to monetary policy bakes in each token or coin supply or web3 treasury management to simplify even further.
While you ask the question “Hmmm, tell me more about the tokenomics of the project, " you should expect the responder to cover topics such as market capitalization, supply, inflation or deflation, how new tokens are distributed, utility, token unlocks, and more.
Before diving into each of them, let’s understand the fundamentals: Demand and Supply Kingz and Queenz 👑
Let’s dive deep into what all of this means for you as a user/ investor:
There will only be 21,000,000 BTC and they are released at a rate that gets cut in half every year four years. Over 90% of the supply is in circulation and there will be only 10% more.
What about Ethereum? The circulating supply is around 118,000,000, and there’s no cap on how many Ether can exist. But Ethereum’s net emissions were recently adjusted via a burn mechanism so that it would reach a stable supply, or potentially even be deflationary, resulting in somewhere between 100-120M tokens total.
At the core, Vesting means setting aside some of a coin's total supply and releasing them into the market after certain conditions have been met.
Locking of the token refers to a specific period of time in which cryptocurrency tokens cannot be transacted or traded. Typically, these lockups are used as a preventive strategy to maintain a stable long-term value of a particular asset.
Burning of the token is the process that involves transferring some amount of it into a burn wallet address (also known as burner wallet) with no private key.
Convex is a platform that sits on top of Curve (above) and helps you earn a higher yield by aggregating many investors together. It lets you earn most of the higher yield you would get on Curve if you had locked up thousands of CRV tokens for 4 years, without having to do the locking yourself.
By hopping into their docs, we can start to answer the questions I laid out in this article.
Convex has a fixed max supply of 100m which will be released over time at a decreasing rate, depending on CRV deposits.
According to Coingecko, 78.5m of that 100 M have already been created, meaning the current supply will inflate by another ~33%.
Of those tokens, the vast majority are going to the people using Convex. So this is a very fair token distribution, only a comparatively small amount is being retained for the team and investors. For comparison, imagine if Amazon gave away 75% of its stock to people who used Amazon:
So there’s a fixed supply, the remaining supply is being released at a decreasing rate, most of the tokens are going to the community, and there’s a max 33% dilution from here. Things look pretty good on the supply side.
Demand: By holding the CVX token, you get a share of all Convex Finance revenue. That’s not a huge amount, but it earns about 4% right now:
That’s not all, though. You can also lock your CVX tokens for 16 weeks at a time, and when you do so, you get bonus rewards from various protocols who want to reward Convex stakers:
Here the APR is still just 5%, but that’s not including the bonus rewards you get from other platforms:
And on top of that, you can delegate your Convex to other voters, in return for “bribes” using the service Votium.
So there is a pretty significant ROI on staking your CVX tokens, even if the value doesn’t change at all. And it has a very strong game theory supporting holding the token since you only earn these rewards if you lock your tokens for 16 weeks at a time.
The memes aren’t as strong since it’s a somewhat boring back-office DeFi protocol. But they don’t need to be. It’s a cash flow machine.
So Convex has a fixed supply, which is mostly allocated to the community. Most of the tokens are in circulation, and there won’t be much more inflation. Holding CVX is heavily rewarded via protocol fees and other rewards to token holders, so there’s less reason to sell if the price dumps.
The core value of web3 lies in giving back to the ecosystem and rewarding the users. Obviously, all projects might not have a token for good or bad but they usually allocate economic value in some form.
While it might be in the form of a DAO, Token or other rewards. Usually under a token generating value and revenue for the project, the pass on to the users can be Universal-Value flows to all token holders or Selective-Value flows to a subset of users who are active participants eg- through staking.
cost of production, Store of utility or medium of exchange or unit of account might also be a good way to calculate value accrual to use as metrics for investing.