Tokenomics jargon is used to define token-related concepts in the Web 3.0 world. You would need to have an idea of these concepts to fully grasp all aspects of tokenomics throughout this series and in the industry. Throughout my articles, I highlighted these words by making them bold.
These explanations are not text book definitions, do not give you a word-for-word accurate definition, the world of web3 is constantly changing, you can expect these definitions to change as the industry expands. I've broken down these definitions so anyone can understand them.
What is Tokenomics
Tokenomics is the combination of two words: Tokens & Economics, Tokenomics is the study of the economics of a crypto token. How it gets its value, how this value is distributed and how it is retained
Token Terms Definitions
Utility: Utility simple means the use of a token, what functions it can be used for or what activities you can use it to carry out OUTSIDE of buying and selling the token.
Security Tokens: Security tokens are tokens that represent real world assets. These are digital tokens whose value are tied to the ownership of a physical asset like a house, car, etc
Value Tokens: are just that, they retain the value of a coin. They state what value a project bears at any given point in time. They are used for nothing else but trading. Project: A project is a general term used for any developing coin, token, or DAO community being created. To this effect, most crypto projects come with their own tokens or they may use already existing tokens.
Vesting: Vesting is the process of delaying the release of new tokens bought to prevent a rapid sell-out. If all the coins bought at an ICO are released immediately, they may flood the market, causing a decline in price.
Market Cap: This is the total value of the token circulating supply at any given time of the project. It is simply the number of tokens circulating at any given time.
Liquidity Pools: There are smart contracts that lock tokens, so the project has liquidity when it needs it
Liquidity: This is when a network has many buyers and sellers meeting at the right time, making the rate at which transactons are done very fast aka "liquid". when a market is liquid you can sell a high amount of tokens at a fixed price that is transperant
ICO: An Initial Coin Offering is how tokens are funded by selling them in a secondary market. Here the new tokens are exchanged with other crypto coins. These new tokens can be bought in various exchanges.
IPO: IPO(Initial Public Offering) is when the company enters for the first time in the crypto market.
IEO: Initial Exchange Offering is how new tokens are listed on exchange platform. Coins are "listed" when they are added to crypto exchange where they can easily be bought or sold
Deflatory Tokens: Deflatory Tokens have a limited number that can ever be created. They are slowly released in the market at stipulated time,. Bitcoin is an example of a deflationary coin. Only 21 million Bitcoins can ever be created. Inflatory Tokens: Inflatory tokens do not have limit on how much can be minted, they are minted continously over time, thereby "inflating" their prices
DEX: Decentralized Exchanges, are places where you can buy and sell crypto Unlike centralized exchanges that are company owned, decentralized exchanges have no central company or CEO
Business Model: A business model is how you intend to make money. It is the method/model in which your money will be made, when you make a token, your business model is how expect your coin to make money.
Behavioral models: Behavorial models are rules or estimations of how a network works. Behavioral models help us predict how players in a newtork would act/react to new transitions based on their past behaviors
Investors: Investors are people who put in money in crypto project expecting to make profits. they tend to invest early a Project's ICO, IEO or seed round. Since they have a high stake in the success of a project, they can be involved in its decision making
Backers: Unlike Investors who reap a profit, Backers are people who invest in projects simply because they believe in.They are not interested in making returns or early profit. They are passionate about technology and the impact of a specific token project
Protocol: Protocols are written set of rules that define how a network operates
Tokens: Tokens are digital representation of assets on the blockchain. Read Tokenomics 1to learn more
DAO: Decentralized Autonomous Organizations are communities with no central body. They do not have any hierarchy or board. Decisions tend to happen through voting and staking.
Players: Everyone participating in a token network; buyers, sellers, spectators, and investors. Players are also called particpants, they are every one that make a project work.
Markets: Any digital or physical environment where trade occurs, A market can be an exhange platform where people buy and sell coins
Primary markets are where new tokens are issued. Here, a project is sold to investors to raise money for the funds.
Secondary Markets: Secondary markets, this is where investors resell tokens of projects they have bought already. Here, the Project founders have nothing to do with the trade taking place. Trade occurs between investors and buyers
Minting: This is the process of creating new tokens and circulating it in the market for trading pruposes, since it is decentralized, anyone can "mint" their own token
Burning: This is the process of deflating a token by removing a percentage of it from the market. To burn a token, these tokens are sent to wallet addresses with no number
Yielding: When investors yield, they strategically distribute new tokens into decentralized platforms by loaning it, staking it so it earns interest and potentially moves the prices upwards
Staking: Not buying or selling your currency as an attempt to help a project make more money
Locking: when new tokens are mined, founders can stop tokens from being transacted or traded. This is to ptevent tokens from being traded all at once causing the prices to rise and dip quickly
Consensus: This is how a blockchain network use to reach an agreement on the state of the blockchain ledger, including the order of transactions
Smart Contracts: Smart contracts are codes used for programming tokens. It is possible to program tokens because they are digital. Smart contracts tell a token what to do when they are bought or sold.
Network: A network is a community of people who interact together, they are powered by tokens. There are digital and physical networks. Networks is fostered by all of the collaboration of all the people, technology and techniques involved in a network's ecosystem.
Oracles: Although smart contracts are smart, they can not read data gathered from the real world. An Oracle is the intermediary between smart contract and the real world. they are used to predicts markets such as they reward people when secure predictions are made
Armed with this new knowledge, reading about token design or variables of tokenomics will be easier to understand. You can go through each episode again, identifying areas you missed out on and relearning how all these core concepts interact with each other.
Tokenomics is an evolving and important field in web3, as the world embraces the concepts of creating non-monetary value in the web3 space, more things will be tokenized.
Learn Web3 Jargons Through Games
One way to actively learn about these terms is through interactive games.
Crypto Charade is a simple game that can help you dive deep into the world of cryptocurrency and web3 in a simple and fun way. This game is made available for everyone to buyhere
You will find certain words like "network" that cuts across tokenomics, web3 and crypto mentioned in the card games. Using the simply definitions mentioned in the cards, practice your knowledge by explaining them to your friends and see how far you come along. If you'd love to help us spread the game to educate people about web3, reach out to us at gamesrubicon@gmail.com
Resources
How To Create A Token Vesting Schedule
About The Author
As a product consultant in web3, my oyster is helping web3 teams build better products through design thinking and tokenomics. More like great social engineering for great products. I am open to technical research, writing white papers and product managing web3 teams. You can reach out to me on Twitter or send me a direct mail; favouroziomaonukogu@gmail.com