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This week in crypto…

Everything you need to know to stay on top in Web3

🚗 Porsche NFT Drop raises questions

Porsche recently launched its inaugural NFT collection… And it didn’t go well. Why? Porsche decided on a mint price of 0.911 ETH per NFT (around $1.4k). Such a high price in a bear market spelled a cash grab to many crypto Twitter denizens and the project failed to mint out. Porsche had since cut the supply, with 2,363 NFTs out of 7.5k minted by the time they closed minting. 🙃

Not the best example of a mainstream brand jumping into Web3. BUT, the Porsche mint did start an interesting discussion. Namely, can you get a refund for NFTs you purchased? 👀

UK and EU laws provide distance selling regulations which state that customers have a 14-day cancellation period to return goods and services purchased online. If a seller fails to inform the customers of this right, the cancellation period is extended. Porsche lawyers took these regulations seriously enough and asked their minters to waive their right to withdraw the purchase.

What about the projects that didn’t include this tidbit in their terms and conditions? Can customers get a refund for their Moonbirds or Otherdeeds? Remains to be seen. The Twitter user who broke the story is now attempting to get a refund from Yuga Labs. Curious to see how it all unfolds.

🤯 Kevin Rose and Azuki suffer hacks

Kevin Rose, the creator of Moonbirds, lost $1.1M+ in NFTs last week. Kevin was phished into signing a malicious signature. This hack once again demonstrated the need for a cleaner and more human-readable UX in wallets. 💯

Azuki Twitter also got hacked and hackers were able to get away with $750,000 worth of USDC, 11 NFTs, and over 3.9 ETH through a fake surprise mint. Remember: reputable, popular projects will never announce a surprise mint out of nowhere. Always triple-check before clicking and curb the FOMO. ✅

TLDR: Intro to tokenomics, part II 💸

Last week we did a 101 on tokens - read it here. Now, let’s jump into tokenomics - the umbrella term describing the economics of token-based projects.

Tokenomics generally describes how a project manages its token and includes factors like:

🧮 Token supply

📨 Token allocation and distribution

🛠️ Token utility

🔥 Incentive mechanisms

In essence, tokenomics of a particular project both describes and directly impacts the value of its token.

Let’s break it down:

🧮 Token supply

Token supply refers to the number of tokens a project might issue.

👉🏽 Supply and demand is a crucial economic factor so figuring out token supply is incredibly important to the project’s success. For example, a project can have a maximum supply (like Bitcoin), which means only a certain number of tokens will ever be issued.

Tokens can also be inflationary or deflationary. Inflationary tokens are those that have an increasing supply, while deflationary tokens are those that have a decreasing or constant supply.

🧐 Can a token be deflationary even if it has an infinite supply? Yes. For example, ETH has infinite supply but it also has burn mechanisms that remove tokens from the circulating supply, making it deflationary. That means that the number of ETH burned was higher than the number of ETH issued.

👉🏽 Speaking of, circulating supply is another important factor in tokenomics. Circulating supply describes the number of tokens available for buying and selling. Many projects have burning, staking, or locking mechanisms that remove tokens from the circulating supply. For example, there are currently 11.5 million ETH staked and locked out of the circulating supply.

📨 Token allocation and distribution

When a project is launched, the team decides on token allocation and distribution.

For example, BTC was launched without private allocations or pre-mining. Other projects choose to reserve a number of tokens for investors, treasury, core team members, or other reasons while allocating the rest of the tokens to the public. Most projects sell the remaining tokens or use them as a reward for early community members.

👉🏽 What matters is defining vesting schedules to ensure the supply and demand balance. A vesting schedule defines the time and cadence at which investors or other stakeholders can sell their allocated tokens without creating a supply surplus.

🛠️ Token utility

Controlling the supply of a token is important, but it’s the token’s utility that drives demand. In crypto, tokens can take on a number of use cases: from governance to transaction fees to membership to payment methods to… well, memes.

And although there are many tokens with dubious or no utility thriving in the bull market, only the tokens that have actual utility survive the bear and persist in the market. 🔥

👉🏽 What keeps a token-based system in check and functioning as intended?

Beyond the basic factors we just covered, tokenomics need to include incentive mechanisms and game theory principles. 🎯

Stay tuned as we explore game theory and incentives next week in our third and final part on tokenomics. 💸

In the meantime, dive deeper with this video or this book.

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See you next week!

​Dusanka​

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