Tokenomics

Tokenomics is the crypto jargon word for everything related to the management of token financials. Let’s review some of its elements.

Remember the sample CryptoBasics token I created in Chapter 12? I set up the max supply to 21 million for the straightforward reason – that’s the number used by Bitcoin. But I could set up virtually any number.

The max supply defines the maximum number of your crypto that can be ever created, that is, how many coins or tokens can be released into circulation. Don’t confuse it with the total supply, also called the circulating supply, which shows how many tokens or coins are circulating right now. So how do the crypto creators define max and total supplies? The rule is that there are no rules.

Some designers copy the key numbers and algorithms from existing crypto; others come up with their own, sometimes crazy, concepts. Note that no matter how high or low the max supply number is, the market will determine the market capitalization, the total supply multiplied by the token price. The price of a single token or coin does not matter. What matters is how many tokens out there can be sold at this price.

For mineable coins like Bitcoin, Ether, and Monero, the circulating supply increases as more blocks are generated and new mining rewards are paid to the miners. This growth can be shown as a graph called the emission curve. Using an emission curve, you can predict how many coins will be there at any given moment in the future. Figure 14-1 shows the Bitcoin emission curve.

A line graph depicts total coins in millions from 0 to 21 versus years from 2009 to 2033. The graph depicts an increasing trend.

You can see that the Bitcoin protocol ensures continuous inflation because more and more coins are minted with every block. But the increase gradually degrades every four years when the mining reward is halved according to the Bitcoin protocol.

Unlike fiat money, whose supply is replenished periodically by the governments printing new money, the total number of bitcoins will remain the same once it reaches the max supply number. In practice, it will never reach 21 million but will be close. Note that many coins are already lost and will continue to be lost as people forget their wallets’ private key or seed mnemonic phrases. Such lost assets will be missing from the supply forever, increasing the value of a single coin even more.

If you have premined crypto assets and want to sell them, you need to consider that your reserve of premined coins or tokens is not the only source for sale. New coins or tokens are continuously injected into circulation if your crypto is mineable. If your crypto is openly tradeable on exchanges, the miners will “compete” with your sale by constantly selling their newly mined assets. To prevent it, you need to make your sale exclusive by either not listing your cryptocurrency before the sale on any exchanges or striking a deal with a selected exchange to do something like IEO so that other sales will be prohibited .

Listing on Exchanges

Listing on crypto exchanges is critical in every crypto project. The listing converts your coin or token from a theoretical project to a real tradeable asset and gives it a price. Listing is relatively simple if you have much money because exchanges want the crypto developers to pay them well for making their baby tradeable. There are at least two reasons for this.

One reason for the high listing costs is that exchanges have one-time and ongoing expenses associated with the listing. For each new asset being traded, they must pay their developers for integrating with the new crypto tech and for hosting the wallet and the node infrastructure. Depending on your project’s technology, these expenses can range from zero to thousands of dollars.

Another reason for exchanges to charge ridiculously high fees for listing is that this is their good income source in addition to trading fees. Imagine an exchange that fakes most of its trading volumes – they don’t earn much on trading, so the listing is where they can get their livelihood. A few new crypto projects are popping up (and dying) every day, so this income source has all characteristics of a recurring revenue stream.

If your crypto is an ERC-20 token, most exchanges are already integrated with Ethereum and support other ERC-20 tokens, so their listing expenses are nearly zero. But if your project is a brand-new blockchain, its developers need to learn your protocol, connect to your block explorer, host your node, and integrate with your wallet’s API. Such work will take time and will cost them. The exchange listing fee varies from zero (if you are lucky and catch some extremely rare promotion) to hundreds of thousands of dollars for top exchanges, so be prepared.

Don’t forget about DEX listing – this is less significant than CEX but also an option. If you have created an ERC-20 token, you can easily list it on Ethereum DEXs such as Uniswap. There are plenty of articles on how to do that online, so I will not duplicate them here.³

Market Making

Market making is the way to inflate the trade volume of crypto assets artificially. Exchanges often do it to raise their rating on CoinMarketCap and other ranking sites and attract more traders.

Some crypto exchanges do market making by themselves for all their trading pairs automatically, but others may ask you to do it for your crypto trading pairs, which is not a legitimate request. Since exchanges cannot require you to conduct the market making directly, they may add a clause in the listing agreement regarding your trade volumes. They can put on hold the trading of your asset or even completely delist it if the trading volumes fall below a particular number, which is typically pretty high for new, unknown crypto.

If you want to go down the market-making path, you can use the services of one of many providers of market-making bots, or you can do the bot yourself.

How to Detect Listing Scammers

If you decide to go on the journey of creating your crypto project, you will never be alone. You will be accompanied by an army of scammers throughout the process, from the beginning, when you have nothing that can be stolen yet, to the more mature stages, when you will have an asset that automatically becomes a target for hackers and scammers. Every day you will be getting offers to help you with sales, marketing campaigns, development, listing on exchanges, managing your community, creating YouTube videos, and much more (Figure 14-2).

An image depicts a deleted account of a user on Telegram at the top. A text message from the deleted account is also visible at the bottom.

On Telegram, you can report the user as a scam, but who knows how many victims will be out there until the reports are processed, and the account is banned? Scammers are as creative as developers of cryptocurrencies!

I’m not saying everyone who reaches out to you is a scammer, however. There are honest people, of course, in the crypto industry, trying to earn their share of the hype. But the percentage of rogues is very high compared to traditional business, which is related to the entire virtual nature of the crypto industry.

So, be prepared for scammers – there will be many of them. You will get offers through email and social media to list your crypto for a decent fee. Some of these people will be legitimate representatives of the exchanges, but most are scammers. If you are not interested in the listing, just ignore them. But if you are, you will need to validate their identity.

The most straightforward way to verify the identity is to ask the person to send you an email from their corporate email address. Every exchange has a corporate structure with an email system linked to its primary domain. Let’s say someone reached out to you on Telegram with an offer to list your crypto on the P2PB2B exchange.

First of all, if they say they can “help” list your crypto, but they are not exchange employees, just ignore and ban them. If this person says they are an employee of P2PB2B, they must have a corporate email address, so ask them to send the offer through email to your work email from their corporate address. You can verify the exact domain name of the exchange by going to CoinMarketCap and searching for the exchange record. The domain name for the P2PB2B exchange is p2pb2b.com (Figure 14-3).

An image depicts a coin market cap webpage, that has P 2 P B 2 B exchange record. The information displayed on the page includes cryptocurrency, exchange, market capitalization, volume, and domain name.

From and Signed-by are the most important fields: the email should be originated from and signed by the p2pb2b.com domain. In this case, this is a legitimate email, and the person behind this offer is the real rep of the exchange.

Another secure method of identity verification is sending an email to the address displayed on the exchange’s official website (usually in the main page’s footer), such as [email protected] . You can ask to confirm that the Telegram account of the person who made you an offer belongs to the exchange employee. If you get a reply to your email with the confirmation, you can continue working with this person. Also, in the footer of the exchange website usually, there is a link to the listing applications so that you can apply for a listing on all exchanges through the CoinMarketCap’s exchange list.

Listing on small exchanges costs less, but it is inefficient because they don’t have a big enough userbase to kick off the significant trading for a new token. Trading volumes are probably fake in most cases. It’s better to list on one top exchange than several small ones.

Marketing Scammers

You can use the same steps described earlier to detect other scammers, but it becomes more complicated if people offering you their services are individual entrepreneurs. For example, some video makers on YouTube propose creating a marketing video for your project, which can be helpful. But how do you know they are not scammers?

First of all, such a video maker should have a channel on YouTube that you can check out to evaluate the quality of their work. They should have their email or Telegram username published on that channel. If they reach out to you through Telegram but don’t have a Telegram username published on their channel, send an email to the address posted on the channel and ask them to reply to confirm their identity. Please don’t ask them to send you an email; only respond to it; otherwise, they may try to trick you!

Another important tip: Do not pay anyone up front. Make an arrangement to pay after the work is done. If they disagree, pay some small portion of the payment in advance, and the rest after the project is finished. In many cases, you won’t be satisfied by the quality of the work, but if you paid already, you would never get your money back.

How to List on CoinMarketCap and CoinGecko

Once your coin or token hits the mainnet and is listed on one or several exchanges, you need to tell the world of crypto fans that it’s officially there for them to take. It’s difficult to imagine real crypto that would be not listed on CoinMarketCap or CoinGecko websites, which became de facto world registries for cryptocurrencies. Their role is similar to ICANN’s (the Internet Corporation for Assigned Names and Numbers) role for Internet domain registration.

Once you have all these attributes, you just go to the website and apply.

For CoinMarketCap , there is a Request Form link at their website footer under the Support menu. You should select the following request type: 1 - [New Listing] Add cryptoasset. On the CoinGecko website, the Request Form link is located under the About CoinGecko menu. There will be many questions, almost all of which are straightforward, and many are optional. If you have a legitimate project, it will be listed quickly.

Telegram Trolls

You will get many supporters in your community who like your project and sometimes even offer gratuitous help. But at the same time, there will be people who continuously criticize your project, argue, and even harass you and your followers. The mistake you will probably make is starting a dialog with them. Don’t. You won’t be able to convince them because there is a person who just looks for an argument for any reason.

Sometimes, people work for or invest in a competing project and are financially motivated to criticize your project. These people are called trolls. Don’t waste your time on trolls; just ban them. If they are not real trolls and they still want to participate in the project, they can reach out to you via DM (direct message) to admit their mistake so that you can unban them.

AMA Sessions

Even if you don’t have enough funds to hire a marketing professional, there are many things you can do by yourself and sometimes even for free or a minimal fee that can be paid with your project’s crypto. One of such marketing tools is the AMA (Ask Me Anything) session which can be done in various formats. One popular form of AMA is the Telegram session, organized and moderated by crypto communities. Many such groups on Telegram have thousands and even hundreds of thousands of followers.⁴

The owners of these groups earn money by promoting new cryptos by posting ads and organizing AMA sessions. There are many local groups in different languages; they translate AMA questions and answers in real time to and from English. The average time of an AMA session is one hour. All the questions and answers are usually scripted, that is, they are prepared in advance and released one by one during the session to avoid surprises.

AMA moderators also take questions from the public through Twitter and Telegram, but the AMA host and guest have the right to select the questions that will be answered. Participants of the AMA receive rewards, typically in the project’s coins or tokens, but can be in “hard” crypto such as ETH or BTC .

Development Team

In the previous chapter , we talked about the team already. That was the core team, that is, in most cases, co-founders and advisors. Now you need to do the actual work – write the code – so you must find developers. IRL (In Real Life) developers are a rare case in crypto, so don’t waste your time and money on the office space and local recruiters but go full remote right away. A few years ago, remote work was exotic for many employers, but now, in the post-Covid world, it has become a new norm. So, you will have to learn if you are not used to it.

In crypto, everything is done remotely by teams geographically spread worldwide. Most of the time, teammates and business partners communicate only through chats and never see or even speak to each other, which is usual practice in crypto. In one project, I had some developers I had never seen on the video, although at least I have spoken to them over Skype. On another project, I had team members I had never even spoken to, only communicated to them on Telegram.

Remote communication is not an issue – you have free Skype, cheap Google, or fancier Zoom. Skype worked well for me, but this is up to your taste. A few tips, however.

First, hold daily status meetings, even if you are not following a formal agile/scrum methodology. If you don’t have daily communication, you lose control over the situation quickly.

Second, use video. Every device has a camera, so there is no excuse for anyone to keep their video off. If they do it once, that’s completely fine – everyone has their moments. But if they do it all the time, they hide something.

Third tip, forget about the first two if your project is small and informal. You can do well without daily formal meetings and video if it’s just you and another guy or two. But if you have a team of ten, try implementing numbers one and two from the beginning.

One way to find developers is by looking at GitHub. You should check projects similar to yours. It is especially easy if you create yours by forking another crypto. You can also check projects that were also forked from your code origin. Almost every developer has a website or email on their profile so that you can contact them, and they will be happy to respond if they are interested in your project.

Another option to develop your code is outsourcing. Many development outsourcing companies would be happy to help you if you have money, so prepare your wallet if you want to go this route. Individual developers can be interested in a project and work for the stake of your crypto, but outsourcing will require “real” payments, fiat in many cases.

Relationship with Developers

Beware of business owners, managers , or employees who pretend to be your family. When bosses talk about their employees as a family, this is hypocrisy. Maybe they even mean it when they say that, but believe me, they will forget it when the time comes. Business is all about money. I am not saying you can’t make friends at work. Of course, you can, with your colleagues. But it is a mistake to think about your employer as a family; unfortunately, there is so much proof.

Most of us have some family – children, spouses, parents, grandparents, cousins – any combination of them is your real family. And your close relatives will not throw you out on the street if some temporary financial difficulties suddenly arise or their business plan and budget change. But your boss will and won’t even bat an eyelid.

If you are in a position to create your own business and hire people, don’t lie to them and don’t give them empty promises. It does not mean you have to tell them that you have enough money only to pay their salary for 12 months, but at least hire them as contractors.

When you hire someone as a contractor, it gives that sufficient awareness about uncertainty. You don’t promise too much, and people don’t build false expectations. As compensation for risk, developers can get rewards in the form of bonuses and shares paid in crypto.

Partnerships

When I say development, I usually mean software development . That’s likely because I am a software developer in my background. But development in any business, including crypto projects, also means business development. Finding some partners in the early stages is essential to demonstrate that your ideas are finding support among mature businesses.

If you manage to secure a partnership with a well-known company, it will add many bonus points to your project. Partnerships are one of the best marketing tools in crypto.

PoC vs. MVP

There are two concepts in software development that you are probably not familiar with if you are not a developer: PoC (proof of concept) and MVP (minimum viable product) . These are two initial stages of software development.

PoC is the first software release that typically does not do much besides just showcase some fundamental product features that will work in the future. For example, it can be a crypto node that processes transactions but does not have the finished implementation of the consensus algorithm or complete network communication. Hence, it only works as a single node.

Unlike PoC, MVP can already be offered to first users. It has the basic features implemented and working, but it does not look fancy and still has bugs. An example is the alpha release of the wallet without a proper, good-looking user interface design but already doing some basic functions like send and receive.

PoC is an excellent tool to show your progress to the community and prove that your project is moving in the right direction. If you want to offer something to VC investors or potential partners, you better have MVP.

Open Source License

Another aspect of crypto software development that would be important to review at the beginning of the project is the open source license. First, let’s clarify – there is no place for proprietary code in crypto; this is the base assumption. It can be not easy to accept if you come from the traditional commercial software industry, but you will have to. If you make your crypto software proprietary, it will cause multiple issues.

First of all, there will always be a suspicion about the quality and readiness of your software. Crypto projects can hide many things but cannot conceal what they have done in the code. It gives users some peace of mind.

Second, the DeFi is primarily based on technology. Unlike traditional banking, there are no human safeguards in the decentralized crypto world, and everyone’s finance depends entirely on the software’s quality and security. The only way to prove that the software is reliable is to open it so independent researchers and hackers can test and validate it.

Another essential function of the MIT license is protecting the developers from liability claims for any harm the software can do. This will become important if someone decides to sue you. Figure 14-4 shows an example of an MIT license.⁶

22 lines of text depict the copyright included in the M I T license.