A Primer on Tokenomics

Last Modified:
March 1, 2024

Tokenomics is the system used for creating and managing a token. Here are some of the concepts you need to understand when you evaluate the tokenomics of a cryptocurrency or new crypto project:

Total Supply

The total supply of a cryptocurrency is the total amount of that token that will ever exist. This includes all tokens that have been mined in the past and will be issued in the future. Depending on the particular blockchain network’s rules, the total supply may be fixed or unlimited.

An example of a token with fixed supply is Bitcoin. The total supply of Bitcoin is 21 million, so no more than 21 million Bitcoin will ever exist. This increases the scarcity and demand for Bitcoin, which may affect its price in a positive way. Meanwhile, an unlimited supply could lead to inflation and reduce the token's value over time.

Circulating Supply

This is the number of tokens that are available in the market for trading and other uses. A token’s circulating supply is different from its total supply, because many tokens may be currently unreleased, kept in reserve, permanently locked in a burner wallet, or temporarily locked in smart contracts for future use. When evaluating the potential value of any cryptocurrency, it's important to consider not just its total supply, but also how much of that supply is actually in circulation.

Market Cap

Market capitalization, or market cap, is the total value of a cryptocurrency in the market. To calculate a token’s market cap, multiply the current market price of one unit of the token by the token’s circulating supply. Since crypto prices are highly volatile compared to other digital assets, the market cap of a token can be used to measure how risky it is. Usually, a project with a larger market cap is considered more stable than a project with a smaller market cap.

Hard Cap

Hard cap can mean the total supply of a cryptocurrency, or the maximum number of tokens that will ever exist.

More often, it refers to the maximum amount of funds the crypto project aims to raise during its initial coin offering (ICO), or initial launch. Once the target amount is reached, the project will no longer accept any additional contributions. The money raised correlates with how many tokens will be issued, allowing the tokens to have a fixed price before entering circulation.

No Cap

Depending on the context, No Cap can mean two things:

No maximum supply cap: when a cryptocurrency has no limit to its maximum supply.

No fundraising cap: when a crypto project has no set limit on the total funds the project plans to raise during its launch.