Questionable Tokenomics

Questionable tokenomics is probably the biggest red flag for any cryptocurrency project, undermining its sustainability and value. Tokenomics is basically the structure and economics of a token within a project: its supply, distribution, and utility. When poorly designed, it can lead to inflation, centralization, or lack of any incentive for the users, eventually bringing a project to its knees.

General issues include the fact that a few founders, insiders, and early investors have an unbalanced amount of tokens. This creates a risk due to market manipulation whereby such large-scale token holders sell them, leading to crashes in prices. Such a situation is referred to as a "rug pull."

The other issue is the inflationary supply of tokens; while new ones keep being minted, mechanisms put in place for supply control are lacking. This causes dilution in the value of existing holders and makes it difficult for the token to retain its value.

Lack of utility in the token is another source of concern: if the token is useless in its ecosystem-be it for governance, staking, or an entrance ticket for some service-it is purely speculative and will not attract long-term investors.

In fact, questionable tokenomics means poor distribution is inflationary and lacks utility, which may potentially make a cryptocurrency project unviable and lead potential investors off.

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~ Nesaty