A cryptocurrency’s prospects of long-term success are often directly linked to its economic model. But how best to assess the tokenomics of a project?

There are some key elements that provide the basis for a robust assessment, and it is important to understand token supply and distribution in order to make an evaluation. 

The total supply of a token (the maximum quantity that will ever exist), its circulating supply and distribution (allocation among stakeholders and the community) are all important elements that have an influence, both independently of one another but also in combination.

In addition to these key factors, there are also considerations around a token’s utility and real-world use cases that can assist in evaluating a project’s appeal and, therefore, its potential for adoption.

Token purpose is one, as the functions a token serves within its project’s ecosystem is an indicator of its value. Demand drivers of a token and incentive structures such as staking rewards are also important value determinants.

The actual economic model of a project is also a fundamental factor in evaluating token sustainability. As well as supply dynamics, a token’s liquidity and trading volume are extremely important - high liquidity attracts investors and reduces risk. The fully diluted valuation (FDV) of a token is another gauge of its future potential.

Non-economic factors such as the team behind a project, their experience and track record is also an important consideration for many investors.

The descriptions provided above are all based on publicly available information, and as such cannot be considered as financial advice or encouragement to invest. Sources of information used in this article include Investopedia, Techopedia, Forbes and CoinMarketCap. All transactions involving digital assets involve certain risks, which you should familiarize yourself with prior to any investment.