Tokenomics 101: 5 Key Metrics That Drive a Cryptocurrency’s Value

We see headlines every day about shitcoins or tokens pumping 200% overnight or dumping just as fast. But any experienced investor knows that behind those flashy price moves lies something much deeper — the economics that keep a token alive or send it straight to zero. That’s why understanding tokenomics isn’t just nice to have — it’s non-negotiable.

Tokenomics is basically the blueprint for a crypto economy. It covers how the token is created, what it’s used for, how it’s distributed, and what incentives keep people holding it instead of dumping it at the first pump.

Here are five key metrics you need to know to really understand what gives a token its value.

Metric 1: Market Capitalization

Market cap is simple — it’s the token’s current price times the number of tokens in circulation. 

So if a token is worth $2 and there are 50 million tokens out there, the market cap is $100 million. Easy math. At first glance, it’s a simple formula, but it allows you to assess the overall scale of a project and its weight relative to other assets in the market.

But here’s where newbies mess up: they look only at price per token. Just because a token is “cheap” doesn’t mean it’s undervalued, and just because another one has a high price doesn’t mean it’s expensive. It all depends on how many tokens exist. For example:

• A token priced at $0.01 with one billion tokens in circulation will have a market cap of $10 million.
• A token priced at $10 with only 100,000 tokens in circulation will have a market cap of $1 million.

So, market cap is a better indicator of size than price alone. Still, it has its downsides:

• It doesn’t show liquidity, meaning how easily the market can handle big buys or sells without crashing the price.
• It can be manipulated if liquidity is low and someone trades at an inflated price.
• It doesn’t count locked tokens that might flood the market later and tank the price.

Metric 2: Circulating Supply vs. Total Supply

One of the key metrics when assessing tokenomics is understanding the difference between circulating supply and total supply. These two indicators are often confused, but their ratio helps determine both the current and potential market cap of a project and assess risks related to future token unlocks.

Circulating supply is how many tokens are actually out in the market right now. Total supply is how many exist in total, including tokens still locked up with the team, investors, or for future rewards. Knowing this difference is critical because it allows you to:

• Assess inflation risk and price pressure when unlocks happen
• Forecast the potential dilution of holders’ shares when new tokens are issued
• Analyze the project’s distribution structure

For example, if a project has a market cap of $50 million but only 10% of its total supply is circulating, the other 90% will eventually unlock. When that happens, the market gets flooded and prices usually drop hard — unless demand grows at the same pace, which is rare.

That’s why the circulating and total supply need to be analyzed together. Only then can an investor understand not just the current value of a token, but also its potential future dynamics and supply risks.

Metric 3: Token Velocity

Token velocity shows how often a token is used for transactions and other operations over a certain period. It’s calculated by dividing the total transaction volume by the average market cap over the same period.

This metric helps determine whether a token is used mainly for speculation or has potential for long-term investment. High velocity may indicate active use and utility within the ecosystem, while low velocity may signal minimal activity or low user interest. For example:

• If ETH has $500 billion in monthly transaction volume and an average market cap of $350 billion, its velocity is 1.43. That means each ETH gets used about 1.4 times per month. So ETH’s velocity is average, meaning it is actively used as a payment token but also held as a store of value.
• If BTC has $600 billion in monthly transactions and an $800 billion market cap, its velocity is 0.75. This means each BTC was used in transactions less than once a month, showing that most holders prefer to keep BTC as a store of value rather than use it for daily payments.
• If USDT has $1 trillion in monthly volume and an $85 billion market cap, velocity is ~12, indicating it is actively used as a payment and trading tool rather than held long-term. Stablecoins are designed to move constantly, so that’s normal.

Velocity is important for evaluating crypto projects because it helps understand holder behavior and predict the sustainability of a token’s economy. 

Metric 4: Token Utility and Use Case

A token’s utility defines its functional role within an ecosystem and directly influences demand. Even with a well-designed emission schedule and a high market cap, if a token lacks utility, its value relies purely on speculative market interest. If a token has no utility, it’s basically a meme coin — price only moves based on hype.

Real utility creates real demand. The main types of utility include:

• Governance. Gives voting rights in protocol management, such as decisions on smart contract changes or DeFi platform parameters.
• Staking. Used for staking to secure the network or earn validator rewards.
• Payment. Serves as a medium of exchange to pay for goods, services, or fees.
• Gas Fees. Pays for transactions and operations on a blockchain network.
• Access. Provides access to certain features, service levels, NFT games, or DeFi products.

If a token has a solid utility that people actually use, it has a much better shot at surviving bear markets and growing long-term. Utility is the foundation for a token’s internal economy and its investment appeal over time.

Metric 5: Inflation and Emission Schedule

Emission schedules and inflation determine how a token’s total supply changes over time and what price pressure it creates. Inflation means the total number of tokens in circulation grows, diluting existing holders’ shares.

The emission schedule shows when locked tokens unlock and who gets them, including:

• Project team
• Early investors
• Ecosystem rewards
• Liquidity mining incentives
• Project treasury
• Essentially, an emission schedule shows:
• How many tokens will be unlocked or issued in the future
• When unlocks will happen (team, investors, strategic partners)
• The overall distribution structure

Knowing these parameters helps evaluate:

• Price pressure risk. Large token unlocks can trigger strong price drops if demand doesn’t grow proportionally.
• Inflation impact. Understanding emission rates helps calculate real staking returns. For example, if staking offers 20% annual rewards but inflation is 25%, the real return is negative after dilution.
• Project credibility. A transparent and balanced emission schedule shows team maturity and well-designed tokenomics. In contrast, unclear or overly inflationary emissions often signal a weak economic model.

For example, Bitcoin has a fixed supply of 21 million coins, making it deflationary, with halvings every four years further reducing new issuance. Dogecoin uses an inflationary model with no supply limit, releasing about 5 billion new coins annually, keeping prices low but ensuring stable miner rewards.

Analyzing a token’s inflation and emission schedule gives investors a clear view of future supply changes and dilution risks, which is critical for making investment decisions, especially for long-term holding. Projects with clear, transparent emission schedules build trust. Those with unclear or massive emissions — red flag.

Real-World Examples of Evaluating

Let’s break down a few popular tokens with these metrics to see how it works in practice. As examples, here are four popular projects:

*data based on CoinMarketCap as of July 7, 2025

Based on this analysis, Polygon (MATIC) shows the most balanced tokenomics: almost all tokens are already unlocked, minimizing inflation risk, and it has strong utility, creating constant demand. Its fixed supply further boosts investment appeal.

Meanwhile, Optimism (OP) and Sui (SUI), despite strong tech potential, carry significant risks. Only 25% and 15% of their tokens are circulating, with major upcoming unlocks that could put strong downward pressure on prices, especially if demand doesn’t grow proportionally. Their utility is limited, creating some demand but not enough to fully offset unlock risks.

Axie Infinity (AXS) shows the dangers of tokenomics with high inflation and limited utility. Although 50% of tokens are circulating, ongoing unlocks and low velocity, where most tokens earned in-game are immediately sold, create constant selling pressure. AXS’s utility depends entirely on the popularity of a single game, making the project extremely vulnerable if user interest declines.