Are Shares the same as Tokens?
The simple answer to that question is no.
It is often misunderstood that purchasing cryptocurrencies is the same as any other investment market. We often think we are investing in the project and company when we buy a token. However that is not the case. Unlike traditional finance cryptocurrencies don't always represent the project. In very simple terms, While purchasing crypto currencies we are buying the token and not the shares. Shares represent equity in the company. Generally, tokens do not represent ownership in the company or any property
While making a purchase studying the fundamentals of the project might not be sufficient and that is where tokenomics comes in!
Tokenomics is the study of how tokens function, their intended use and the elements to be taken into account. It tries to understand both the usability and supply of the token.
Here's a detailed read on what tokenomics is and how it impacts your crypto -
https://www.coindesk.com/learn/what-is-tokenomics-and-why-is-it-important/
Let's look at the points we need to consider while investing in a token.
USE CASE OF THE TOKEN.
Without something having a use, there would be absolutely no reason to invest in it!
For example let's consider the Quant Network (QNT). It has a product Overledger which requires a license fee. The interesting part is that the license fee can only be paid in QNT tokens. However if this was not the case, there would be no other use of the token making it not worth what it is now.
It actually happens where the token has no use at all or it can be easily bypassed!
THE TOKEN SUPPLY
The token supply can be defined in 2 different terms. The circulating supply and the max supply. The circulating supply means how many tokens are “tradable” in today's market.
Price has usually found a price equilibrium based on the tradable volume however if the tradable supply changes so does the price of the token. For example if the volume suddenly increases without adequate supply the price is bound to fall because of the simple demand and supply concept.
You might want to think twice about buying tokens with an extremely low circulating supply (%) because the price will be affected anytime the circulation supply is increased. Since the supply is really low there is more chance of it being increased. In these cases no matter how strong the team is or the token is it can't be protected against a major sell off!
If the vesting period shows us in the token distribution schematic VCs, partners or private investors will get their tokens every month for the next 2 years with a huge TOKEN PRICE difference this is something to worry about.
As an example in today's markets we'll take a look at one of the 2 hottest upcoming blockchains Sui and Aptos.
These 2 projects have both received more than 300 million dollars in funding from vcs and partners. But the tokenomics for them still hasn't been released. That leaves us wondering: At what price did those VCs buy the token for? At what price will we be buying ?How much of the tokens are those VCs holding (%)? How long are they locked up for and when will they release and how much each month or quarter? Both of these blockchains have been praised for their tech and innovation but bad tokenomics has the potential to totally kill them! The fundamentals won't be able to protect the price in case of the VC’s dumping their share.
How do you know what crypto is suitable for you? Don't worry we've got your covered -
https://www.ourcryptotalk.com/post/how-to-pick-that-one-right-coin
The tokenomics can almost always be found by visiting the whitepaper or on the official website. Can't find them? Visit the socials and directly ask them!
Projects with well-designed tokenomics are much more likely to succeed since they have done an excellent job of rewarding the purchase and holding of the token.
Projects with bad tokenomics are bound to fail because users sell the tokens at the first hint of danger.
So always make sure you consider these points before you invest in tokens and not just the overall image of the token!
If you are into crypto and looking to hold up discussions, join communities and network better with traders and crypto enthusiasts from all over the globe, you should definitely check out -
https://app.ourcryptotalk.com/