Analyzing Project Tokenomics: 5 Tips From a Pro


The bear market is the time to build. If you’re not a builder, it’s time to upgrade your trading skills. One skill that seems particularly difficult to hone is analyzing tokenomics. According to Binance Education, ‘tokenomics’  is a term that captures a token’s economics. It describes the factors that impact a token’s use and value, including but not limited to the token’s creation and distribution, supply and demand, incentive mechanisms, and token burn schedules. For crypto projects, well-designed tokenomics is critical to success. But how does the average investor go about analyzing tokenomics?

Today’s Expert: Mhl.eth

We asked Mark Mhilli (aka mhl.eth), founder of MHL Solutions and tokenomics advisor to Sublime Venture, for some tips, and here is what we learned.

Review Tokenomics Last

Tokenomics is the last item Mark reviews on a project. Before taking time to review the numbers, he wants to make sure the project makes sense and that he wants in. Branding, lore, and design are all reviewed. He looks at the team, the investors, and, of course, the utility. The project needs to solve a problem, and if it doesn’t, he never makes it to the tokenomics. If he is still interested after reviewing the social media, pitch decks, and whitepaper, then and only then will Mark dive into the numbers. 

On first glance, Mark checks the token’s utility. He asks, “What is it, and what does it do?” If there is no utility, he moves on. Next, he reviews the ecosystem and translates the token economy into token metrics. Here are 5 tips to help you analyze a project like a tokenomics expert.

5 Tips to analyze Tokenomics Like a Pro

  1. Review the token allocations. These are usually the numbers represented in a pie graph that explain how much of the funds goes to what aspect of development or the project. The question that needs to be satisfied is how and why they decided to allocate tokens to which wallet or person. If a number seems off, it likely is. 
  2. The token distribution is the most important to Mark. Projects sell tokens to launch. This puts some tokens in the open market but how many? Some tokens may be in staking or farming mechanisms for rewards. While it seems like an incentive it’s actually a distribution method. While it is disguised as a reward it is a way to distribute the token and assimilate people to it and this is a good thing. 
  3. The cliff and vesting period is often overlooked. This is where a math guy like Mark can play with numbers. With the vesting schedule the team can reduce or postpone selling pressure. Vesting is critical because projects can decide how many tokens are issued into the open market every month. The ideal is to keep this numbers as low as possible. This number can decide the difference between a long term and short-term project. 
  4. Mark said you need to “analyze the psychology behind the numbers.” Why did the team choose these metrics? Why is there a long cliff? Why is the vesting period different for certain rounds? What does the team need and what is the message that tells us? For example, if the team doesn’t have a cliff or a vesting schedule, it’s possible they are trying to sell their tokens as soon as possible. If a team has a low allocation, it means the team maybe doesn’t even want their own token. 
  5. If one piece is missing in all of these tips, an investor can’t complete the puzzle. Try to understand all the pieces and fit them together. If they don’t fit, ask why.

While there are a lot of pieces that go into analyzing tokenomics, these tips can create a solid foundation for getting started. Next, we’ll speak with a researching expert to see what goes into a research report of a web3 project. 

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