Tokenomics Glossary

Comprehensive tokenomics glossary with 60+ terms. Definitions for token allocation, vesting schedules, value accrual, FDV, circulating supply, and Web3 economics concepts.

A

Airdrop

Free distribution of tokens to existing users or community members, often used for protocol launches, marketing, or rewarding early adopters.

Automated Market Maker (AMM)

Automated Market Makers (AMMs) are decentralized platforms enabling the trading of digital assets through algorithm-driven liquidity pools, rather than traditional order books. These platforms use a set of mathematical formulas to price assets, allowing users to trade directly with the pool, which simplifies and automates the process of buying and selling cryptocurrencies.

APY (Annual Percentage Yield)

The annualized return on an investment including compound interest. In DeFi, often inflated by token emissions that may not be sustainable.

APR (Annual Percentage Rate)

The annualized return on an investment without compounding. More straightforward than APY but less commonly displayed.

B

Blockchain

A blockchain is like a digital ledger, but it's spread across a network of computers. Each 'block' in the chain packs in data, sealed with cryptography. This setup is super secure – once something's in there, it can't be changed or deleted. It's the backbone of cryptocurrencies like Bitcoin, but it's not just about digital money. Blockchain's also shaking things up in areas like digital art with NFTs and even in creating trusty contracts without the middlemen. It's all about making transactions transparent, secure, and decentralized.

Buyback and Burn

A value accrual mechanism where protocol revenue is used to purchase tokens from the market and permanently burn them, reducing supply and theoretically increasing value per token.

Bonding Curve

A mathematical formula that determines token price based on supply. Used for automated price discovery and token sales.

C

Cliff Period

The cliff represents a predetermined duration during which token recipients must wait before they begin receiving their allotted tokens. This “lockup” time precedes the actual vesting schedule and is commonly used for groups like the project team, foundation, and early investors from seed or private sales.

D

Dilution

The reduction in ownership percentage caused by new token issuance. Affects existing holders when supply increases.

DePIN Tokenomics

Tokenomics for Decentralized Physical Infrastructure Networks, balancing hardware provider incentives with sustainable demand-side economics.

E

Emission Schedule

The planned release of new tokens into circulation over time, typically for staking rewards or ecosystem incentives.

F

Fair Launch

A token distribution method where no tokens are pre-mined or allocated to insiders before public availability. All participants have equal opportunity to acquire tokens from the start.

Fixed Supply Token (FST)

Refers to a cryptocurrency model where the total supply of tokens is set in advance and cannot be altered. This creates scarcity, potentially leading to value appreciation as the supply is limited.

G

Governance Token

A token that grants holders voting rights on protocol decisions such as parameter changes, treasury allocation, and upgrades.

H

Howey Test

Determines if a transaction qualifies as an investment contract, requiring: investment of money, profit expectation, common enterprise, and reliance on others' efforts. Its application to cryptocurrencies remains contentious, with varying opinions on their compliance.

I

ICO (Initial Coin Offering)

It is a fundraising method in the cryptocurrency sector, similar to an IPO, where companies raise capital to fund new projects by issuing digital tokens.

Initial Circulating Supply

Denotes the number of tokens that are available and circulating in the market immediately after a project’s launch or list their token. It can also be referred to as the tokens circulating at the Token Generation Event (TGE).

IPO (Initial Public Offering)

It is when a private company offers shares to the public for the first time to raise capital.

L

Low Float

A token launch with a small percentage of total supply initially circulating, often leading to high volatility and inflated FDV.

Linear Vesting

Tokens are dispensed in consistent amounts over a specified time frame, ensuring a proportional release. An instance would be the dispersal of 10% of vested tokens every six months. This timeframe can span days, weeks, months, or even years.

Liquidity Mining

Distributing tokens to users who provide liquidity to a protocol. Common for bootstrapping liquidity but can lead to mercenary capital.

M

Max Supply

The absolute maximum number of tokens that can ever exist. Some tokens have no max supply (inflationary), while others have hard caps (e.g., Bitcoin's 21M).

Market Cap

The total value of circulating tokens. Market Cap = Token Price × Circulating Supply. A more accurate measure of current market value than FDV.

MiCA

Markets in Crypto-Assets Regulation - EU framework for crypto regulation including requirements for token disclosures, reserves, and operational standards.

P

Public Sale

A token offering open to the general public, including ICOs, IDOs, and IEOs. Usually occurs after private rounds at higher valuations.

Private Sale

An early fundraising round where tokens are sold to select investors (VCs, institutions) before public availability, typically at discounted prices with vesting requirements.

Pre-mine

Tokens created and allocated before a project's public launch, typically reserved for founders, early investors, and development funds.

Protocol Revenue

Income generated by a protocol through fees, spreads, or services. The source of sustainable value accrual mechanisms.

R

Revenue Share

A value accrual mechanism where protocol revenue is distributed directly to token holders or stakers. Examples include GMX's 30% fee share and Jupiter's ASR program.

RWA Tokenization

Real World Asset tokenization - representing physical assets like real estate, commodities, or securities as blockchain tokens.

S

Seed Round

The earliest investment round in a crypto project, typically offering the lowest token prices in exchange for highest risk and longest vesting periods.

Security Token

A token classified as a security under regulatory frameworks, subject to securities laws including registration and disclosure requirements.

Security Token Offering (STO)

It is a regulated blockchain initiative that offers digital tokens representing real-world assets, such as equity or property. It merges traditional investment compliance with blockchain's efficiency, providing a secure, legal framework for digital fundraising.

Supply Shock

In cryptocurrency occurs when there's an abrupt increase in the number of tokens available, disrupting the market's supply-demand balance and often leading to a rapid decrease in token value.

Sink Mechanisms

Features that remove tokens from active circulation such as staking, locking, burning, or using tokens for fees.

Strategic Round

A funding round targeting investors who provide value beyond capital, such as ecosystem partners, exchanges, or industry leaders who can support growth.

Staking Rewards

Tokens earned by locking (staking) tokens to support network security or protocol operations. Can come from inflation or protocol revenue.

T

Tokenomics

The economic design of a token including supply mechanics, distribution, utility, and value accrual. The foundation of sustainable crypto projects.

Tokenomics Audit

A professional assessment of a token's economic design covering distribution, vesting, value accrual, and sustainability. Provides transparency for investors and communities.

Total Supply

The maximum number of tokens that currently exist, including both circulating and locked tokens. May increase through minting or decrease through burning.

Token Allocation

The distribution of a token's total supply among different stakeholder groups such as team, investors, community, treasury, and ecosystem incentives. A well-designed allocation balances incentives across all participants.

Token Burn

The permanent removal of tokens from circulation by sending them to an inaccessible address. Burns reduce supply and can increase scarcity.

Token Distribution

The method and timeline by which tokens are released to various stakeholders. Distribution strategies impact decentralization, price stability, and community trust.

Token Generation Event (TGE)

This marks the specific date when a project introduces its token on an exchange, be it centralized or decentralized. It’s the inaugural moment when investors and other stakeholder groups can potentially have tokens unlocked for their use.

Token Inflation

Refers to the increase in the circulating supply of a token over time, leading to a reduction in its purchasing power due to more tokens being available.

Token Unlocks

Occur when a portion of a cryptocurrency’s total supply becomes available for trading. This can lead to supply shocks that can affect the price of the coin or token.

Token Utility

The functional uses of a token within its ecosystem, such as governance voting, fee payments, access to services, or collateral

V

Value Accrual

Mechanisms that capture protocol revenue and direct it to token holders, increasing the fundamental value of holding the token. The defining factor of sustainable tokenomics.

Vesting Schedule

A time-based plan that determines when and how allocated tokens become available to holders. Vesting protects against immediate selling pressure and aligns long-term incentives.

Variable Supply Token (VST)

Refers to a cryptocurrency model where the total quantity of tokens can change over time, based on predefined rules or governance decisions. This flexibility allows for adjustments in supply to meet evolving economic needs or game dynamics. VSTs are often used in gaming and blockchain projects to maintain economic balance and adapt to changing market conditions.