Crypto Ch5: Tokens & Tokenomics

Chapter 5. Coins, tokens, stablecoins, and tokenomics

5.1 Coin vs token

Coin

A chain’s native asset.
Examples: BTC, ETH, SOL

Token

An asset issued on top of an existing chain, usually through smart contracts.
Examples: USDT, USDC, UNI

This distinction matters because native assets usually play protocol-level roles, while tokens usually play application-layer roles.

5.2 Why native assets exist

A native asset commonly serves as:

• The unit used to pay protocol-level resource fees
• The asset used in staking or network security
• The default settlement asset of the system

A chain with no native economic unit would struggle to price scarce shared resources and, in PoS systems, to align validator behavior.

5.3 Why tokens exist

Tokens allow application-layer systems to represent:

• Governance rights
• Stable value claims
• LP shares
• Yield-bearing positions
• Debt claims
• Synthetic assets
• Incentive mechanisms

However, not every token is necessary. A critical question is:

• Could the product function without this token?

5.4 Stablecoins

Stablecoins are among the most important pieces of crypto infrastructure because they provide a relatively stable unit of account and settlement inside crypto-native systems.

Broad categories

• Fiat-backed
• Crypto-backed
• Algorithmic / weakly collateralized

Stablecoins matter because they serve as:

• Trading pairs
• DeFi collateral and settlement units
• On-chain cash equivalents
• Bridges between crypto and fiat-denominated thinking

Stablecoins are not interesting merely because they “stay near one dollar.” They are important because they import a stable accounting unit into an otherwise volatile native environment.

5.5 Genesis issuance vs ongoing issuance

Every blockchain needs an initial state.

Genesis issuance

The initial asset allocation written into the system at launch.

Ongoing issuance

New coins created after launch according to protocol rules.

5.6 Why ongoing issuance exists

It is often easiest to understand issuance as a security budget.

In PoW

New issuance rewards miners for contributing physical work and maintaining the chain.

In PoS

New issuance rewards validators for staking capital, remaining online, and correctly participating in consensus.

This is a useful antidote to simplistic discussions of “inflation.” Issuance is not merely token dilution. It is often how the protocol pays for security.

5.7 How to think about ETH supply

ETH supply is best understood through four lenses:

1. Genesis issuance
2. PoW-era issuance
3. PoS-era issuance
4. Fee burn

This means ETH supply should not be discussed only in terms of “inflation” but in terms of net supply change:

• New issuance minus burned supply

5.8 Market cap vs FDV

Circulating market cap

Price × circulating supply

FDV (Fully Diluted Valuation)

Price × fully diluted supply

This distinction matters because many crypto assets have large future unlocks and emissions.

A token can look “small” on circulating market cap while being heavily burdened by future supply.

5.9 Unlocks, vesting, and cliff

Cliff

A period during which no tokens unlock.

Vesting

A schedule by which locked tokens gradually become unlocked.

These matter because future supply entering the market can create sustained sell pressure.

5.10 Tokenomics red flags

Common token design risks include:

• Small circulating supply with huge FDV
• Heavy insider allocation at low cost
• Large upcoming unlock schedules
• High emissions without durable demand
• Weak product-token linkage
• Yield driven mainly by token subsidy rather than real usage

Key takeaway

Do not evaluate tokens by price alone. Understand supply structure, unlock schedules, demand drivers, value capture, and whether the token is genuinely necessary to the system.

— Mar 24, 2026

Crypto Ch5: Tokens & Tokenomics by Lu Meng is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Permissions beyond the scope of this license may be available at About.