With so many tokens available today and their underlying tokenomics that define them, it becomes tricky to sift through all the investment opportunities at stake. No matter what level of investor you consider yourself to be, some still miss essential aspects to understand when conducting fundamental analysis.
Tokenomics, being one of those aspects, refers to how a token project is designed, what incentives are in place, and how that impacts the price of a cryptocurrency.
In this blog post, we take a deep dive into some of these aspects so you can make informed decisions when investing and why we believe a crypto token like $MATRIX deserves your attention.
The term tokenomics or token economics is the science of the token economy, a concept explored by B.F. Skinner back in 1972. It refers to the economics behind every token; how much will be available, its role on a network, its distribution, use cases, and its supply management.
Tokenomics is an important aspect when considering the performance outlook of a particular cryptocurrency.
Although there are several types of tokens, MatrixSwap’s MATRIX token will be first available as an ERC-20 (Ethereum) and it will later be available on Polkadot and Cardano.
The total supply of the MATRIX token will be 100 million, where various segments noted below will dictate its token distribution and overall network adoption. MATRIX will act as a utility token on the MatrixSwap platform, facilitating transactions and enabling interaction. It will also play a critical role in the platform’s governance and future development that network users will later dictate.
A token’s distribution to specific stakeholders and community segments highlights several aspects important to the project’s evolution. For example, some projects conduct private funding rounds to gain capital for the project's development, while the investors gain early access to the token at lower price levels. In addition, some tokens are reserved for future developments while a fraction of them are sold to the public.
In the MATRIX token distribution case, 12.5% of the tokens are allocated to the private sale with a vesting schedule.
Instead of an initial coin offering, we'll conduct an IDO as our token generation event (TGE). The TGE unlocks 10% of those private sale tokens, with the remaining token placed in a lock-up period of nine months, where a small portion of tokens will be distributed daily. 30% of the total token supply will be set aside for rewards, while the remaining 33% is reserved for future developments.
The project’s team will receive 14% of the token subject to a 180-day lock period after the token generation event (TGE), after which tokens will be unlocked daily for two years. Advisors will receive 8% of the tokens. Their tokens are locked for 120 days after TGE. After the locking period, tokens will be unlocked daily for the next 18 months.
Finally, the general public will receive 2.5% of the tokens at TGE public sale.
Note that the vesting schedule will impact the token supply and subsequently influence its price. Cryptocurrency prices tend to be highly volatile, and some projects counteract this through their vesting schedules as the first line of defense against too much volatility. For example, the limited nature of the MATRIX tokens at just 100 million in total supply with a starting public supply of 2.5 million tokens means it might quickly spike in value. However, the vesting schedules with limited releases will counteract that price spike.
The Matrixswap platform has a deflationary economic approach tied into its fee mechanism. It will charge a 0.1% percent fee on every transaction, and those fees are essential for maintaining the platform’s operations. In addition, smart contracts on our platform send half of the fees to Matrixswap’s insurance fund to ensure its security.
The remaining 50% of fees are allocated across different areas, including on-chain referral fees, competition prizes, lottery prizes, and a buyback program that will also feature a token burn. The latter plays into the token's deflation since it will reduce the circulating supply. Note that lower supply with constant or higher demand is a recipe for a higher token price.
While many token swap platforms earn profits through transaction fees, Matrixswap takes a different approach. The token buyback ensures that the platform controls the supply of the tokens in the market, a good strategy for ensuring price stability and transactional demand. It is similar to share buybacks in the corporate world, where companies maintain control of the supply of their shares in the market.
Token burning is a common practice to ensure a balance within their blockchain’s protocol. For example, a platform performs a token burn to produce a type of reward that’s later distributed to the market’s participants. Rewards also indicate that the platform will allow people to participate as liquidity providers by staking their crypto holdings. And those who decide to run a node to help further decentralize the network will also be rewarded.
Burning tokens also ensure that the supply is deflationary, meaning that there will be fewer tokens in circulation. Token burning in the crypto is usually done by sending tokens or digital assets to a dead wallet, where they’ll be rendered useless.
A proper and well-executed governance structure is an essential and exciting feature of blockchain technology. The Matrixswap platform leverages MATRIX as its governance token, which means token holders will have the right to participate in decisions regarding its operations. Transitioning to a DAO is such an essential piece for the Matrixswap team as it leans heavily on one of our pillars of community building. Giving our community the power to vote is one of the best ways to ensure that Matrixswap users collectively decide the direction of the platform. The idea is that those who stand to benefit from the platform should make decisions regarding its evolution and operations.
Six to nine months after Matrixswap’s mainnet launch, ZionDAO will roll out to handle the ecosystem’s governance. ZionDao will be responsible for platform growth, proposals, and voting rights. In addition, governance scope may include critical decisions regarding the vAMM Fee Structure, oracle providers, trading fees, the token amount required for platform usage, and market listings.
The presence of a decentralized autonomous organization or DAO to oversee the platform’s governance likely means some MATRIX tokens will be locked in the DAO as part of its functioning mechanism.
Tokenmetrics are essential for determining if a token has the potential to deliver excellent returns. A blockchain network may have a well-thought-out solution; however, if the tokenomics appears off, its tokenmetrics will likely be less attractive. An instance where tokenomics might not favor a platform is when vesting schedules unintentionally cause the price to crash.
One of the best ways to evaluate a cryptocurrency’s tokenomics is to go through its allocation schedule to stakeholders by figuring out the number of tokens that the stakeholders will receive at what price.
In the case of the MATRIX token, the stakeholders who participated in the private issuance will receive 12.5 million MATRIX tokens, roughly 12.5% of the total supply.
The private stakeholders will receive the tokens at $0.10, and the total valuation for their allocation is $10 million. Only 10% of their holdings will be unlocked during the TGE. After the TGE, a small number of their tokens will be unlocked every day for nine months.
Only 2.5 million MATRIX tokens will be allocated to the public issuance at the TGE. With a price tag of $0.10, this will bring the total valuation to $10 million.
Token allocation for future development and ecosystem rewards will have the largest share of the MATRIX tokens at 32 million and 30 million, respectively. In addition, they will have linear vesting schedules for two years, which means a consistent amount of their tokens will be unlocked regularly throughout the vesting duration.
Tokenomics allow the platform to function as intended, thus helping the developers build the best solution. In addition, tokenomics determines the token’s utility and, in a way, defines the characteristics of a token’s price performance.
In MATRIX's case, tokenomics also provide an outlook of how the price will likely perform. For instance, vesting schedules are known to contribute to bearish performance for the underlying token or cryptocurrency.
On the other hand, the tokenmetrics indicates that a total of 4.75 million MATRIX tokens will be available at TGE, including the public allocation, the unlocked private stake, and the 1 million tokens allocated to DEX liquidity.
Again, the limited amount of tokens available at launch may cause price action. However, the vesting schedule will contribute to stabilization over the following two years.
The limited token supply and deflationary characteristics will likely contribute to solid price performance in the coming years.
Understanding the tokenomics of a project is one of the best ways to understand the goals and the values of a project. Combining tokenomics with all the other essential elements in the fundamental analysis will take your investment wisdom to new heights.
With that said, we hope you enjoy your time within the Matrixswap platform. With one of our aims to be fully community-owned, we're excited for our network holders and everyone who wants to trade without limits in our decentralized multi-chain vAMM.