What is the token with the best tokenomics?

I see the crypto world as a playground where plenty of different concepts are tested out. Every crypto currency and every token is defined by it's tokenomics. Whatever type of „coin production“ we have, it's always kind of the same. There is an initial distribution, often in the form of airdrops or distributions among conceptors of a token. Then there is the distribution process in itself. These parameters will define how the supply of a token over time.

When creating a token, the supply is the parameter that can be planned and defined by the creators. The unknown parameter is the demand for this token. The demand can be influenced greatly by use cases. The better the use cases or the utility of a token, the higher a demand can be expected.

In this post, I would like to have a closer look at some supply models for tokens.

The initial supply

When a token is launched, there is or is not an inital supply that is distributed. Often the token creators issue some tokens for themselves to cover expenses and maybe also with the dream to get rich in the process. In this phase, the token can also be issued in the form of an airdrop. With an airdrop, token creators hope to spread the token among a bigger population. This can be a great way to promote it.

The supply growth

Most of the tokens have a way to grow their supply. This is often called inflation which is actually not the most appropriate term to define that. I would call it rather supply growth. This growth can have several forms. The newly created tokens can be issued through mining, staking or any other process. The way the tokens are created doesn't really matter. What matters however is the speed at which the tokens are created.

Let's make some examples to illustrate how from a mathematical point of view the change of these parameters influences the growth of a token supply. In a proof of stake environments, this growth would then allow an APR for the token stakers. When I speak about APR, this is not really appropriate. It should rather be growth rate but I have already supply growth and I want to avoid to mix everything up.

Example 1: no initial supply and linear supply growth

This token starts with 0 initial supply. There are no tokens distributed among creators and there is no airdrop.

New tokens are minted at a linear rate of 10 tokens per day.

In the table below, you see the APR that such a distribution would create.

Day	Total supply	Increase per day	APR
1	0	10	-
2	10	10	36500.00
3	20	10	18250.00
4	30	10	12166.67
5	40	10	9125.00
6	50	10	7300.00
7	60	10	6083.33
8	70	10	5214.29
9	80	10	4562.50
10	90	10	4055.56
11	100	10	3650.00
12	110	10	3318.18
13	120	10	3041.67
14	130	10	2807.69
15	140	10	2607.14
16	150	10	2433.33
17	160	10	2281.25
18	170	10	2147.06
19	180	10	2027.78
20	190	10	1921.05
21	200	10	1825.00
22	210	10	1738.10
23	220	10	1659.09
24	230	10	1586.96
25	240	10	1520.83
26	250	10	1460.00
27	260	10	1403.85
28	270	10	1351.85
29	280	10	1303.57
30	290	10	1258.62
31	300	10	1216.67
32	310	10	1177.42
33	320	10	1140.63
34	330	10	1106.06

The initial APR levels seem huge and Defi platforms often use such distributions to attract money. It's also clearly visible that with every day that passes the APR decreases.

Example 2: initial supply and linear supply growth

Let's take the same example as above but this time there was an initial airdrop of 1000 tokens made by the creators.

Let's have a look at how this will influence the supply.

Day	Total supply	Increase per day	APR
1	1000	10	365.00
2	1010	10	361.39
3	1020	10	357.84
4	1030	10	354.37
5	1040	10	350.96
6	1050	10	347.62
7	1060	10	344.34
8	1070	10	341.12
9	1080	10	337.96
10	1090	10	334.86
11	1100	10	331.82
12	1110	10	328.83
13	1120	10	325.89
14	1130	10	323.01
15	1140	10	320.18
16	1150	10	317.39
17	1160	10	314.66
18	1170	10	311.97
19	1180	10	309.32
20	1190	10	306.72
21	1200	10	304.17
22	1210	10	301.65
23	1220	10	299.18
24	1230	10	296.75
25	1240	10	294.35
26	1250	10	292.00
27	1260	10	289.68
28	1270	10	287.40
29	1280	10	285.16
30	1290	10	282.95
31	1300	10	280.77
32	1310	10	278.63
33	1320	10	276.52
34	1330	10	274.44

If you compare example 1 and 2, you have actually a same linear supply growth. However the APR is totally different because there was an initial supply.

An existing initial supply will bring the APR of a token down significantly and will give it an apparent stability.

Effectively, the airdroped example brings the evolution of the supply further down in time. Simply put: Take example 1, add 100 days and you will have example 2.

Example 3: No initial supply, deflationary supply growth

Now let's take the example 1 and add a deflationary supply growth. This means that every day the supply increase will be slowed down by 1%. So every day a little bit less tokens are issued.

Let's see what this looks like:

Day	Total supply	Increase per day	APR
1	0.00	10.00	-
2	10.00	9.90	36135.00
3	19.90	9.80	17976.71
4	29.70	9.70	11924.15
5	39.40	9.61	8898.02
6	49.01	9.51	7082.47
7	58.52	9.41	5872.20
8	67.93	9.32	5007.81
9	77.26	9.23	4359.59
10	86.48	9.14	3855.49
11	95.62	9.04	3452.28
12	104.66	8.95	3122.43
13	113.62	8.86	2847.60
14	122.48	8.78	2615.10
15	131.25	8.69	2415.86
16	139.94	8.60	2243.23
17	148.54	8.51	2092.21
18	157.06	8.43	1959.00
19	165.49	8.35	1840.62
20	173.83	8.26	1734.74
21	182.09	8.18	1639.47
22	190.27	8.10	1553.31
23	198.37	8.02	1475.00
24	206.39	7.94	1403.53
25	214.32	7.86	1338.05
26	222.18	7.78	1277.82
27	229.96	7.70	1222.25
28	237.66	7.62	1170.82
29	245.28	7.55	1123.09
30	252.83	7.47	1078.67
31	260.30	7.40	1037.23
32	267.70	7.32	998.48
33	275.02	7.25	962.18
34	282.27	7.18	928.09
495	993.02	0.07	2.57
496	993.09	0.07	2.54
497	993.16	0.07	2.51
498	993.23	0.07	2.49
499	993.30	0.07	2.46
500	993.36	0.07	2.44
501	993.43	0.07	2.41
502	993.50	0.07	2.39
503	993.56	0.06	2.37
504	993.62	0.06	2.34
505	993.69	0.06	2.32
506	993.75	0.06	2.30
507	993.81	0.06	2.27
508	993.88	0.06	2.25
509	993.94	0.06	2.23
510	994.00	0.06	2.20

If compared with example 1, it's not surprising that the APR decreases faster. When you fast forward, you will soon reach a point where there is hardly any APR anymore. On the other hand, we will have a maximum supply that will never be passed. Polycub is built on a similar distribution model.

Example 4: No initial supply, inflationary supply growth

Now this is something that you seldom see in the crypto world. I don't know any token that works like that. We have no initial supply like in Example 1 but every day the distributed supply increases by 1%.

Day	Total supply	Increase per day	APR
1	0.00	10.00	-
2	10.00	10.10	36865.00
3	20.10	10.20	18524.20
4	30.30	10.30	12410.81
5	40.60	10.41	9354.26
6	51.01	10.51	7520.45
7	61.52	10.62	6298.02
8	72.14	10.72	5424.93
9	82.86	10.83	4770.20
10	93.69	10.94	4261.02
11	104.62	11.05	3853.75
12	115.67	11.16	3520.57
13	126.83	11.27	3242.98
14	138.09	11.38	3008.14
15	149.47	11.49	2806.89
16	160.97	11.61	2632.52
17	172.58	11.73	2479.98
18	184.30	11.84	2345.42
19	196.15	11.96	2225.84
20	208.11	12.08	2118.89
21	220.19	12.20	2022.66
22	232.39	12.32	1935.62
23	244.72	12.45	1856.53
24	257.16	12.57	1784.33
25	269.73	12.70	1718.18
26	282.43	12.82	1657.35
27	295.26	12.95	1601.21
28	308.21	13.08	1549.26
29	321.29	13.21	1501.04
30	334.50	13.35	1456.17
31	347.85	13.48	1414.31
32	361.33	13.61	1375.16
33	374.94	13.75	1338.49
34	388.69	13.89	1304.05
496	136746.33	1377.46	367.67
497	138123.79	1391.24	367.64
498	139515.03	1405.15	367.62
499	140920.18	1419.20	367.59
500	142339.38	1433.39	367.56
501	143772.77	1447.73	367.54
502	145220.50	1462.21	367.51
503	146682.71	1476.83	367.49
504	148159.53	1491.60	367.46
505	149651.13	1506.51	367.44
506	151157.64	1521.58	367.41
507	152679.22	1536.79	367.39
508	154216.01	1552.16	367.37
509	155768.17	1567.68	367.34
510	157335.85	1583.36	367.32
511	158919.21	1599.19	367.30
512	160518.40	1615.18	367.27
513	162133.58	1631.34	367.25
514	163764.92	1647.65	367.23
515	165412.57	1664.13	367.21
516	167076.69	1680.77	367.18
517	168757.46	1697.57	367.16
518	170455.04	1714.55	367.14
519	172169.59	1731.70	367.12
520	173901.28	1749.01	367.10

In this example 4, we see that the daily supply is growing at a steady rate because of the inbuilt inflation. With these numbers, the APR will never be below 365%! On the other hand, the overall supply goes to the moon. The system that looks most like this would be that of fiat money.

What is the best system?

These are 4 purely theoretical examples that illustrate how the supply of a token can be manufactured by playing with the initial supply, the supply growth and the inflationary model. In a way, every token out there plays with these parameters and each tokens strives to be the perfect solution.

In my opinion the quality of a token is defined by the combination of an appropriate supply evolution and the according use cases. We should always keep in mind what is the utility of a token and what the best supply evolution is for this utility.

What is in your opinion the token with the best tokenomics?

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