What Are Good Tokenomics?

28 Nov 2023 by Harry Newman 5 min read

Tokenomics refers to the economics underlying a particular cryptocurrency, this includes various factors that govern a token's creation, distribution, supply, demand and overall function within a blockchain. But what are good tokenomics?

Tokenomics differ for each project, there are no rules on how a project sets out its tokenomics, as a result, you can have good tokenomics or bad tokenomics.

Below we will compare Bitcoin which is generally seen to have good tokenomics, with Dogecoin, a meme coin which was initially created as a joke and seen to have bad tokenomics.

What are good tokenomics?

Bitcoin Tokenomics

Bitcoin is often looked at as having good tokenomics, this is due to its scarcity, clear utility and transparent issuance schedule.

Bitcoin has a capped max supply of 21 million coins, there will never be any more created, this created a scarcity and potential deflationary model.

The total supply of Bitcoin is currently around 19.55m BTC.

Bitcoin undergoes a halving event around every four years, when this happens the block rewards are reduced, slowing down the rate of new coins being mined.

Bitcoin is created through mining. A process which requires computer power and energy to function. Mining of Bitcoin ensures a fair and competitive distribution process.

Bitcoin has a market cap of over $700 billion and is the most popular cryptocurrency on the market.

The distribution of Bitcoin is 100% for the community, Bitcoin is fully decentralised with no single entity controlling the project.

Bitcoin is primarily seen as a store of value, often referred to as digital gold.

You can use Bitcoin for transactions, but due to slow transaction speeds and higher costs compared to other cryptocurrencies, it is preferred as a store of value.

Dogecoin Tokenomics

Dogecoin is one of the top meme coins and is often seen as having bad tokenomics.

Originally started as a joke, it has since skyrocketed in popularity, thanks to Elon Musk who openly supports dogecoin.

The original intention for Doge was to become an online tipping method to leave small appreciation gifts for Reddit comments, YouTube videos and charity initiatives.

Dogecoin has no cap on the max supply, effectively having unlimited supply, this is different to Bitcoins' capped supply of 21 million coins.

Currently, there are 141 billion DOGE in circulation with more being created every day. The inflation of Dogecoin affects the price, as more are created the price of Dogecoin is suppressed, decreasing the value of your DOGE.

Dogecoin’s tokenomics distribution is questionable, over 65% of Dogecoin is distributed amongst just 98 wallets across the world, and there is a single Dogecoin address that holds more than 27% of the entire supply.

Dogecoin is widely used for tipping and microtransactions online, this is not the only use case, however, fundraising and charitable donations are also made through Dogecoin.

Dogecoin is less used as a store of value, like Bitcoin, and there is no halving event to reduce the inflation rate of supply.

There continues to be a large amount of Dogecoin created every day, with around 14.4 million new Doge entering circulation every single day, causing the price to fall as a result.

Tokenomics Comparison

Marketcap

Bitcoin’s market cap is around $700 Billion.

Dogecoin’s market cap is around $11 Billion,

Total Supply

Bitcoin’s total supply is 19.55 million BTC

Dogecoin's total supply is 141.9 Billion DOGE.

Circulating Supply

Bitcoin’s circulating supply is 19.55 million BTC

Dogecoin’s circulating supply is 141.9 Billion DOGE.

Max Supply

Bitcoin’s max supply is 21 million BTC.

Dogecoin’s max supply is unlimited.

Distribution

Both Bitcoin and Dogecoin are created through mining.

Utility

Bitcoin is seen as a store of value but it can also be used for peer-to-peer transactions using the Lightning Network.

Dogecoin is seen as more of a meme, small transactions like tipping and charity donations are generally what DOGE is used for..

Generally, Bitcoin is seen as the better investment option when compared to meme coins like Dogecoin.

The way meme coins are set up is purely for enjoyment, with no intention for real-world use or value.

If a project's total supply is unlimited it can cause some issues, mainly for the price.

There were calls for DOGE to be $1 in the past, but this is seen as unlikely to happen due to the amount of new DOGE created every day.

It is a rare case for Dogecoin to reach the success it has as a meme coin, this is mainly due to the strong community and supporters such as Elon Musk.

Generally, a meme coin is not seen as a good investment, the tokenomics model in place is not an example of good tokenomics.

Final Thoughts

Bitcoin and Dogecoin serve different purposes and types of users within the cryptocurrency ecosystem.

Bitcoin is primarily seen as a store of value, and Dogecoin is more of a meme than anything with real value. That being said, Dogecoin has taken centre stage in being the people's cryptocurrency, despite the poor tokenomics, Dogecoin is a popular cryptocurrency that looks like it is here to stay.

Not all cryptocurrencies are like Dogecoin or Bitcoin. Whilst both are still popular cryptocurrencies, don't let it take you away from the fact that the tokenomics of Dogecoin are not the best, and it is advised to invest with caution.

Bitcoin’s tokenomics however, whilst not perfect, are still seen as good tokenomics.

Hopefully this article has better equipped you to understand ‘What are good tokenomics?’.

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