Tokenomics: how to analyze it before judging a project

Before forming any opinion about a crypto project, there is a more basic question: how does its token work? How many units exist, who ended up with them, when more units will appear and what gives anyone a reason to use them. The name given to this set of rules is tokenomics, a blend of token and economics.

There is no official definition of the term. In this article, it means the rules for a token’s supply, issuance, distribution, unlocking, use and governance. The goal is to show what to look at and where to find the information. Nothing here is an assessment of any specific project. The rules cited were checked on October 8, 2026.

First: what the token gives its holder

Before the numbers, find out what the token represents. The CVM (Comissão de Valores Mobiliários, Brazil’s securities regulator) uses a functional classification with three initial categories (CVM, Guidance Opinion 40):

• Payment token: seeks to perform the functions of money, such as medium of exchange and store of value.
• Utility token: used to acquire or access products or services.
• Asset-referenced token: represents one or more assets, tangible or intangible.

The CVM itself stresses that these categories are not watertight: a token may fall into more than one, depending on its functions and associated rights, and may or may not be a security, depending on the economic substance of those rights. When it is a security, capital markets regulation applies. How this works in Brazil is covered in crypto regulation in Brazil: who oversees what.

In practice, try to answer: does the token grant voting rights, a share of revenue, a discount on a service, redemption of some asset, or nothing beyond being traded? If the only use described is “to go up in value,” you already have an important piece of information.

Supply: how many tokens exist and how many can exist

Three numbers come up frequently, and they are not the same thing:

• Circulating supply: how many units are actually available on the market right now.
• Total supply: how many have already been created, including those locked or held by the project.
• Maximum supply: the cap on how many units can ever exist, when there is a cap.

The gap between circulating and total supply indicates how much may still reach the market. A token with a small share in circulation and a large share locked may, in the future, have many more units competing for the same buyers.

In the ERC-20 standard, the most widely used for tokens on the Ethereum network, there is a function that reports total supply, but the standard interface does not define a function for creating new units (ethereum.org). In our newsroom’s assessment, this means the ability to issue more tokens depends on each contract’s code, not on the standard. It is worth checking whether such a function exists, who can trigger it and within what limits.

The opposite case, supply fixed by the protocol, is covered in why Bitcoin has a fixed supply.

Issuance: where new tokens come from

Many projects create tokens continuously to pay validators, reward people who deposit assets or distribute to users. This continuous issuance works as token inflation: it increases the amount in circulation.

Two questions help. Who receives the new units? And does the reward paid come from real revenue from the service, or only from newly created tokens? Yield paid solely through new issuance dilutes existing holders. The validation rewards mechanism is covered in staking: how it works, rewards and risks.

Distribution: who got how much

The initial distribution shows who has economic and voting power. The most common slices are team and founders, early investors, project treasury, community and rewards.

One example documented in academic research is the COMP token of the Compound lending protocol. According to a study published on arXiv, founders and team members, current and future, held 49.95% of total supply, assuming they kept all tokens after vesting, and maximum supply was 10 million units (Axelsen, Jensen and Ross, 2023). The figure serves to show the type of information you should look for, not to judge the project.

The Financial Stability Board (FSB) observes that, in governance tokens, the founding team and its investors tend to hold large stakes and that control over voting can be highly concentrated and opaque (FSB, 2023). IOSCO, which brings together capital markets regulators, notes that developers and founders can sell tokens both at launch and on an ongoing basis, from the protocol’s treasury (IOSCO, 2023).

If the project does not disclose its distribution, or if it does not match what can be seen in the blockchain’s public records, treat that as a problem.

Unlocking: when tokens reach the market

Tokens allocated to the team and investors are usually locked and released gradually, in a process called vesting. In COMP’s case, the cited study records a four-year vesting period for shareholders of the developer company, which ended in June 2024 (Axelsen, Jensen and Ross, 2023).

The schedule matters because each unlock increases available supply. Find out how much will be released, on what dates, to whom, and whether the lock is in the code (verifiable) or only a promise. A lock that is merely declared can be changed.

Utility and demand: why anyone would use the token

Supply is only half the story. The other half is whether there is real use that does not depend on new buyers. Ask:

• Does the service work today, or is it still a plan?
• Is the token necessary to use the service, or would the service work just as well without it?
• Does demand come from users of the service or from people hoping to resell at a higher price?

The CVM recommends that offerings disclose all bases for expectations of economic benefit, including expectations of appreciation on the secondary market that depend on the entrepreneur’s efforts (CVM, Guidance Opinion 40). When the main argument is the team’s effort to make the token worth more, the token’s nature moves closer to that of an investment.

Liquidity and manipulation

A token can have well-written rules and still have a fragile market. On decentralized exchanges, whoever creates the liquidity pool can withdraw it all at once, leaving buyers with no way out.

Chainalysis, a blockchain analytics company, found that 74,037 tokens launched in 2024, or 3.59% of the more than 2 million created that year, showed patterns that may be linked to pump and dump schemes. In about 94% of the suspicious pools, liquidity was withdrawn by the same address that created the pool (Chainalysis, 2025). The company stresses that the method tracks behavioral patterns, not intent, and that this alone does not prove manipulation.

To understand the difference between being able to sell in theory and actually managing to sell, see token liquidity: promise versus reality.

What a serious document should include

In the European Union, the MiCA regulation requires an information document (the crypto-asset white paper) for most crypto-asset offerings. Annex I requires, among other things, a description of the buyer’s rights and obligations, the circumstances in which they may change and, where relevant, information on future offerings and on how many crypto-assets the issuer will retain (Regulation (EU) 2023/1114).

The same regulation prohibits statements about the crypto-asset’s future value in that document and requires a clear statement that it may lose part or all of its value. Material that promises price gains therefore goes in the opposite direction of what the European rule requires. An overview of MiCA is in MiCA: the European framework for crypto-assets.

In Brazil, CVM Guidance Opinion 40 lists recommended disclosures for token offerings, such as identification of the issuer and related parties, third-party activities relevant to the expectation of benefit, including new issuances and the hiring of liquidity providers, and holders’ rights (CVM, Guidance Opinion 40). Use these lists as a checklist even when the project is not subject to them.

A checklist of questions

• Rights: what, concretely, does the token give its holder?
• Supply: what are the circulating, total and maximum supply? Who can create more units?
• Issuance: how many new tokens enter per period and who receives them?
• Distribution: how much went to the team, investors and treasury? Do the numbers match the blockchain?
• Unlocking: what is the unlock schedule, and is it enforced in the code?
• Use: does the service exist, and does it need the token?
• Governance: who decides on rule changes, and with how many votes?
• Liquidity: who controls the pools, and what prevents a sudden withdrawal?
• Documentation: is there a document with clear risks, or only a promise of price gains?

If several answers are unavailable, the lack of information is itself a data point. Scams tend to rely on precisely that gap; see crypto scams: how to spot and report them.

Key takeaways

Analyzing tokenomics means understanding the token’s design: the right it grants, how much exists, how much will still exist, who holds how much and when they will be able to sell. These answers show who gains from the project and who bears the risk.

Well-documented tokenomics guarantees nothing about the project’s future, and crypto assets can lose all their value. What it allows is making decisions based on information, not on promises.