What Is Tokenization and Why Is It Important?

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We believe that there is no person who, as a beginner in the crypto world, invested $10 in some currency with a value of $0.0005 per token or even less and thought, “If the price of the token would come to only $1…” Of course, this is unrealistic, except when you hit the right project in a very early stage or presale. The main reason for this lies in the tokenomy of the project. We will explain to you the easiest way what tokenization is and why it is important. You will also receive advice on parameters to consider when buying a particular cryptocurrency. So that you do not have unrealistic expectations and disappointment at the end of the “Bull” market. So let’s start:

Tokenization – Basics

Tokenomics is a term that refers to and describes all the aspects that dictate the economics of crypto tokens, making them attractive to investors. Here, above all, we mean its offer, distribution, incentives, functionality of the token, and goals of a specific project. All these elements are essential attributes and should be carefully considered by investors before investing in a particular cryptocurrency. Of course, all the terms of the tokenomics are executed through the project’s smart contracts.

In this way, everything from the launch of tokens to their distribution is done automatically. It also remains forever encoded on the blockchain. Additionally, tokenomics is an important aspect of the cryptocurrency ecosystem. It enables projects to prevent bad developers and build trust and a strong, long-term ecosystem. Strong tokenomics supports the token’s value on a long-term level. Also, encourages early adopters while controlling the inflation rate of the token and promoting sustainable growth.

In short, tokenomics describes the economic principles and systems that govern the use and distribution of tokens in the blockchain network. Of course, they affect the economy and the value of tokens. Tokenomics includes everything that shapes tokens’ value and everything necessary to carry out a comprehensive analysis of their attractiveness. We are primarily referring to their investment potential.

For cryptocurrency-related projects, tokenomics is a key factor for success. A deep understanding of tokenomics will help developers efficiently build their projects and present them correctly. On the other hand, a quality tokenomy will undoubtedly attract investors to invest in the project.

How Does Tokenomics Work?

Tokenomy represents a pillar of a cryptocurrency’s value system. The basic structure determines how the token functions within the wider ecosystem of the blockchain project by answering potential investors’ crucial questions like “How many tokens will there be?” “How will they be distributed?” and “When will the tokens’ distribution occur?”

Undoubtedly, the basic idea behind the creation of any token is to bring value to the majority of its owners. Achieving a perfect balance between the basic characteristics is very important. It makes it easier for projects to achieve the desired result. For this reason, we dedicate the rest of the text to all parameters that influence the quality of the tokenization of a certain project:

Token Offering

Every cryptocurrency has a maximum supply: a certain number of coins or tokens representing the maximum amount that will ever exist. During the initial issue, part of the maximum supply of tokens enters circulation. It is called the “current supply”. This supply model creates scarcity, which can increase the value of tokens as demand for them increases. Regardless of whether the project is based on a PoW or PoS system, the token offering includes the basic terms:

  • Total supply: Total number of tokens in circulation and closed minus tokens that have been burned. Total supply can take different forms like fixed total supply, non-fixed total supply, increasing total supply, etc.
  • Supply volume (current supply): The amount of tokens circulating on the market.
  • Maximum supply: The maximum number of tokens that will ever exist. Including tokens currently being mined (if the project is PoW) and tokens that will be generated in the future.

Finally, it should be noted that an increasing number of new projects are oriented toward “Fair Launch.” There the maximum amount of tokens is distributed at once, without the possibility of creating a “Whale,” i.e., a person who, during the pre-sale or sale, will be able to take a percentage of a large number of tokens and thus influencing the price on the market.

Tokenization – Distribution

This characteristic of tokenomics focuses on how the token supply is distributed to stakeholders. Token allocation reveals the proportion in which tokens are distributed among different stakeholder groups. In most cases, token allocation is done as follows:

  • Team: A portion of the token is allocated to the development team, which includes founders, developers, marketers, and advisors. The ideal percentage is usually 10% to 20% of the total offer.
  • Reserved fund: Reserved funds are intended for the further development of project products in the future. This allocation usually varies from 20% to 40%.
  • Liquidity Mining: This applies to PoW projects where the tokens generated are used as rewards for users who provide liquidity to DeFi protocols.
  • Private/Public Sale: Tokens allocated to fundraising rounds for token development.
  • Airdrop: This makes up roughly 1-2% of the total token supply and is distributed to users for free. In this way, future users are motivated to use the platform before the release of the token and thus become familiar with its operation. For this, they will be rewarded with a certain number of coins.

Additionally, some tokens may be allocated for marketing and strategic partnerships. But they make up only a small percentage, and certain projects include these tokens in the “Reserved Fund”. Finally, it should be noted that token allocation varies depending on each project.

Tokenization – Deflation

Introducing a deflationary mechanism is another way crypto projects create long-term value for investors. A deflationary token supply aims to reduce the total token supply and makes the circular tokens much more valuable.

This deflation is very often achieved by burning tokens. Token burning refers to permanently removing a certain number of tokens from circulation to reduce the supply of tokens in circulation on the market. Burning a token positively affects its price because the remaining tokens in circulation become scarcer by the simple logic of “lower supply—higher demand.”

Use of Tokens

Usage represents the most important factor of tokenomics and helps users determine the market value of tokens more easily. Typically, tokens have different functions:

  • Staking: Represents the locking of tokens and provides incentives to holders by distributing additional tokens, avoiding inflation. As new tokens are created daily, staking also reduces the supply of tokens, helping to increase the price.
  • Farming: It represents a partially similar option for staking. Users can provide liquidity to DeFi protocols by locking some of the active tokens (Eth, Sol, etc.). In return, they will be rewarded with the native token of the project on which it is farmed.
  • Transaction Fee: Each blockchain network has its own native token used to pay transaction fees. For example, Ethereum uses ETH as a transaction fee. From the moment ETH moved to PoW, this fee is “stormed,” which ensures the token’s deflation.
  • Management: The platform can be managed according to a centralized or decentralized mechanism, depending on the development teams of the project.

All these factors can undoubtedly help determine the token’s potential and predict its future development.

Circulation of Tokens

Token circulation is a plan to distribute tokens into circulation in the market. The release of tokens into circulation also significantly affects the price of tokens, similar to the allocation of tokens. There are two types of token allocations in the market:

  • Planned allocation: This type of allocation is preferred by most projects. The periods of token release on the market vary from less than a year to 3-5 years, and even over 10 years, and in point number 2 of this chapter, you can see who the most common identities the token is distributed to. Of course, depending on the project, the allocation period may vary. In addition, it is important to note that there is also a “vesting” period. That is a certain time during which the token owners cannot sell it so as not to disturb the currency’s market value. Basically, team members have the longest vesting, but also early investors, considering that they are people who bought the token at a drastically lower price than the market price.
  • Demand-based allocation: Some projects choose this allocation method to help stabilize the token price, avoiding rapid inflation. This method is used less and less over time due to the possibility of manipulation of the token price.

An Example of Tokenization

To bring you closer to the subject of tokenization and clarify the items from the chapter above, we will give an example of a project’s tokenization. It is about Aethir, a long-awaited AI project that has attracted a lot of attention from many potential investors with its usefulness and high-quality tokenization.


This picture shows the token abbreviation $ATH, its maximum supply of 42,000,000,000 pieces, and the chain on which the project will be published (Arbitrum). Other generalities, such as the token release date and the contract address, will be published later. This also represents some basic information about the project itself. We can see what the distribution of tokens will look like in the following picture:

Aethir Distribution

Advice When Choosing a Project Based on the Tokenization View

Cryptocurrencies are becoming an increasingly popular asset class, with Bitcoin and Ethereum as carriers of market capital, gaining significant influence in the financial world. However, the world of cryptocurrencies encompasses more than just price speculation, trading, and holding for future profits. Understanding the basic economic principles behind cryptocurrencies is very important for making informed trading decisions.

The basic advice when buying one of the cryptocurrencies is certainly an insight into its tokenomics. He can tell you a lot about that project. Most of the factors that make up the token economy can be found on the CoinMarketCap and CoinGecko sites. However, it is advisable to check the “Whitepaper” of the project to ensure the information is correct. This can also help investors identify and avoid fraud, such as scams.

If you are interested in a currency, look at its market cap (value of currently active tokens). Immediately after that, how many tokens are in circulation (circulating supply) and what percentage is that of the total supply (total supply). The higher this percentage, the better the sign, given that there is less possibility for the release of new tokens, the sale of which would lower the price.


On the other hand, if the percentage of circulating tokens is small, it is necessary to study in detail when and how the tokens are unlocked. If the “release” of them is linear, it cannot harm the price of the project in most cases.


Tokenomics is a key aspect of the cryptocurrency and blockchain industry. It serves as the economic basis and driving force behind these innovative technologies. By understanding tokenomics, participants can see the true potential of tokens, encourage community engagement, and promote adoption within the blockchain ecosystem. In addition, understanding tokenomics gives you the basic skills to evaluate a crypto project. Additionally, with the documentation related to the project or its white paper, you can get an insight into the supply and demand of tokens. Also, understand how the team stimulates the demand for the token and rationally analyze its future prospects.

As the crypto industry continues to evolve, there is no doubt that tokenomics, as an exciting field that offers the potential to identify quality projects, will play an increasingly important role in shaping the future of cryptocurrency and blockchain technology. With that, we advise all potential investors to research and understand tokenomics in more detail before investing in a cryptocurrency, as a fundamental aspect of the crypto industry. Through deeper research, participants can gain valuable insights into the economic principles that underlie these projects and contribute to the growth and success of blockchain projects.

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