The initial phase of the World Wide Web, known as Web1, involved investors accessing static, pre-designed web pages. This gave rise to successful companies like eBay, Amazon, and Google, as investors who were early to support these ventures reaped substantial rewards. Similarly, as the technology evolved, Web2 emerged, enabling individuals to interact and share resources, content, and feedback through web technologies. This phase birthed companies like Netflix, Uber, Airbnb, and Facebook (now Meta Platforms), and once again, those who invested early enjoyed significant gains
Now, we are witnessing the emergence of Web3, the third iteration of the web. In this phase, individuals can engage in commercial transactions directly without intermediaries, facilitated by technologies like smart contracts, consensus mechanisms, and blockchains. Web3 operates differently from its predecessors, focusing on open architecture software and a variety of tokens to coordinate activities and gauge success by community participationI.
In Web1 and Web2, investors could own shares in influential companies through equity. However, in Web3, investors cannot directly own the protocols driving engagement. Instead, they can hold tokens issued by these protocols. However, the value of these tokens and the value of the underlying protocol might not always align due to various reasons.
Web3 introduces a concept called "tokenomics," which assesses the supply, demand, and mechanisms behind tokens to understand their relationship with the protocol's value. To navigate this new landscape, investors need to comprehend three crucial aspects of tokenomic supply.
Firstly, understanding different supply measures like circulating supply, total supply, and maximum supply is essential. Tokens' value and market capitalization can vary based on these supply metrics. Tokens with a significant amount not yet in circulation might be riskier.
Secondly, considering token emission schedules and lock-up periods is crucial. Scheduled releases and unexpected events can affect token value. The concentration of token holdings and their release timing can signal potential divergences between token and protocol values.
Lastly, the structural allocation of tokens during initial distribution matters. If certain groups like insiders or investors hold a substantial portion of tokens, it can influence supply dynamics and token value.
Tokenomic Supply: The term "tokenomic" is derived from the words "token" and "economics," and it refers to the economic aspects related to the issuance and management of tokens within a blockchain ecosystem. Tokenomics encompasses various elements, including token distribution, utility, scarcity, and value proposition.
One crucial aspect of tokenomics is the concept of "supply." In the context of cryptocurrencies and tokens, supply refers to the total number of tokens that exist or will ever exist within a blockchain network. The supply can be categorized into different types:
Total Supply: This is the maximum number of tokens that will ever be created. It defines the upper limit of token availability.
Circulating Supply: This refers to the number of tokens that are actively in circulation and available for trading in the market. It excludes tokens that are locked, reserved, or not yet released.
Max Supply: This is the highest possible number of tokens that can ever be in existence, including both those in circulation and those not yet minted. Some tokens have a capped maximum supply, while others may have an unlimited or inflationary supply model.
Locked or Reserved Supply: Some tokens are allocated for specific purposes, such as team incentives, development funds, partnerships, or governance. These tokens might be locked for a predetermined period or released gradually over time.
Burned Supply: Tokens can be "burned," which means they are intentionally destroyed or removed from circulation. This action reduces the overall supply of tokens and can influence scarcity and value.
Tokenomics designers carefully consider the supply dynamics to achieve specific goals within their ecosystem. A balanced supply mechanism can impact factors such as scarcity, price stability, and the token's utility within applications and platforms.
In conclusion, Web3 offers promising investment opportunities, but understanding the relationship between tokens and underlying protocols is crucial. Tokenomics provides a framework to assess this relationship and navigate the complexities of the evolving digital landscape