Tokenomics describe how a token’s use affects its price.

Good tokenomics increase a cryptocurrency or token’s price and prevent bad actors from destroying or weakening a network.

Poor tokenomics leave tokens and blockchain networks vulnerable to economic exploits which arise from a lower-than-possible price of a token, disappointing users and investors.

When considering tokenomics, incentives are everything.

Munger also famously said in regards to management practices: “show me the incentives, and I will show you the outcome.”

What you incentivize is what will happen – even more so for blockchains.

In management, incentives are malleable. In decentralized protocols, changing analogous incentives requires a complete overhaul. Changing tokenomics requires consensus to avoid fracturing network effects.

Token economists design protocols to be maximally secure, and maximize token value by applying tokenomic leverage and value capture according to the principles of tokenomics.

Many projects leave tokenomics to chance, relying on speculation to create price support. This leaves them vulnerable and all but ensures 95% drawdowns, and subsequent abandonment by users.

Good tokenomics give cryptocurrencies and tokens a price floor – a price at which they can’t sustainably trade below.

For more on price floors, follow Eat Sleep Crypto on Twitter, and stay tuned for the release of Cryptocurrency Price Floors.