Tokenomics 103: Utility

In the first part of this Tokenomics series, I covered the high-level concepts you need to consider when evaluating a project or company’s token. 

In the second part of the series, I covered how to think about a token’s supply. The emissions rate, market cap vs. FDV, total supply, distribution, etc. 

In this third part, I’m going to cover utility. Utility is a subsection of the demand side of the tokenomics equation. Even if a token has a great supply model, it still needs a good reason to exist and for people to hold it. Without those, there will be no demand for it, and no one will buy or hold it. 

So let’s dig into utility. We’re going to cover:

1. Spending vs Holding
2. Cash flows
3. Governance
4. Collateral

Spending vs. Holding

The first question we have to ask when looking at a token is: are you supposed to hold this token as an investment? Or is it a token you’re supposed to spend? 

If it’s a token you’re supposed to spend, then it doesn’t make any sense to hold onto it long term. You can just buy it in small batches as you need it, if ever. So figuring out which of these buckets a token fits into is one of the first things you really need to drill in on.