The Role of a Tokenomist: Balancing Market Dynamics

Designing token demand and supply

The role of a tokenomist includes designing token demand and supply models that satisfy stakeholders in the short and long term. The demand model explains the purpose of a token, also known as the utility model. The supply model, which we'll discuss in more detail later, explains the basis on which tokens are issued.

In the graphs below, we see demand curves (D1, D2) and supply curves (S1, S2). The intersection of these curves determines the equilibrium price in a given period. The key question is whether the price satisfies both us and liquidity providers. It's important to note that the situation changes over time.

Long-term vs short-term viability

As the famous British economist John Maynard Keynes said, "In the long run, we are all dead." This means that if a large token unlock happens in your project tomorrow and you haven't figured out what to do with it - i.e. you haven't developed a staking program, an NFT sale, or at the very least written to the whales personally asking them not to dump the tokens on the market - then you have big problems, and it doesn't matter that the project's tokenomics are sustainable in the long run.

In other words, you can't just rely on the long-term viability of your project to save you from short-term problems. If you don't have a plan for dealing with large token unlocks, then you're setting yourself up for failure.

External and internal factors in tokenomics

It is important to understand that tokenomics are not omnipotent and cannot create economic systems in isolation from the product. That is, they work in conjunction with the product, marketer, financier and CTO, or with those who perform their functions. The tokenomics expert influences conversions, but is not responsible for attracting users, does not define the product, but only complements it, and finally, does not determine the choice of blockchain on which to build the project.

This brings us to external factors, that is, those factors that the tokenomics expert does not control: the motives of the parties, market data, data from marketers, products and market makers. If the BTC rate collapses, it will affect the token rate regardless of the economic incentives in the project.
Internal factors are what tokenomics experts directly influence. How to get NFT in the game: $500 or $100, or maybe for 5000 native tokens and 5 governance tokens.

The story is similar with the demand model. The flow scheme is a kind of "financial backend" of the project - how money (fiat, stablecoins, native tokens) gets into the treasury, where it is distributed further, etc. Then, based on these and a number of other parameters, we answer the question of how sustainable or unsustainable the system is.

Basic stability criteria: the state of the treasury, the ratio of supply and demand for tokens, and the behavior of the token price.

Tokenomics cannot exist in a vacuum

The role of a tokenomist is a delicate balancing act between understanding economic principles and adapting to the ever-evolving realities of cryptocurrency markets. While well-designed tokenomics offer a blueprint for long-term viability, even the most sustainable projects can be derailed by unforeseen short-term events. As Keynes famously noted, planning for the long run is meaningless if you can't navigate the immediate challenges.

Tokenomics cannot exist in a vacuum. External factors like broader market trends and investor behavior will always play a role. It is the tokenomist's job to be agile, working with internal stakeholders to make the necessary adjustments to both demand and supply models. Understanding the mechanics of token utilities, issuance schedules, and treasury management are critical for maintaining a healthy economic ecosystem within a project.
In short, tokenomics provide a powerful framework, but success lies in the tokenomist's ability to proactively manage the project's economic health on a day-to-day basis, ensuring longevity for the project and its token.