Tokenomics: supply, distribution, value capture
Three questions about any token — and why the third most often goes unanswered.
This lesson has had no expert review. It was written for this platform and against the evidence it cites; nobody has gone through it independently.
Learning objectives
- You can tell circulating from maximum supply and derive the dilution from them.
- You can check whether any mechanism connects the token to protocol revenue at all.
Check your prior knowledge
Answer these for yourself before reading on. Wherever you hesitate is where this lesson pays off.
- Where do new tokens come from?
- What is an unlock?
- What determines whether a token participates in a protocol's success?
Core concept
Supply is a schedule, not a number
Circulating supply is what is tradable today; maximum supply is what will ever exist. Between them lies a calendar of emissions and unlocks. Looking only at circulating supply shows today's market; looking only at the maximum ignores that an unlock six years out weighs differently from one six weeks out.
Distribution decides who can sell
How much do the team and early investors hold, and when do those holdings unlock? The question is not a moral one but a question about supply: an unlock brings sellers into a market whose depth does not change with it. The relevant figure is therefore not the share alone but the share relative to daily trading volume.
The token need not participate in the revenue
A protocol can earn substantial revenue with none of it reaching token holders. Voting rights are not a claim on earnings. The defensible question is therefore not “is the protocol doing well” but: which concrete mechanism connects the revenue to the token — and can governance switch that mechanism off again?
Definitions
- Circulating supply
- The token quantity freely tradable today.
- Vesting
- A lock-up after which allocated tokens become available in steps.
- Value capture
- The mechanism by which a token participates in a protocol's economic result.
Model
How much supply is still coming, and when?
Who holds it, and from when can they sell?
Which mechanism connects revenue and token?
Can governance change that mechanism?
Formulas
Pending dilution
Dilution = (maximum supply − circulating supply) / circulating supply- maximum supply
- tokens that will ever exist
- circulating supply
- quantity tradable today
Limit: The formula ignores timing entirely. Two tokens with identical dilution are not comparable when one releases over ten years and the other over ten months.
Unlock relative to market depth
Days of volume = unlock size × price / daily trading volume- unlock size
- tokens released in the event
- daily trading volume
- average volume over a representative period
Limit: Volume is manipulable and can collapse under stress — the metric describes calm markets better than the ones it is needed for.
Worked example
An unlock, measured in days of volume
- Circulating
- 120m tokens
- Maximum
- 400m tokens
- Next unlock
- 18m tokens in 5 weeks
- Price / daily volume
- USD 0.60 / USD 3.2m
Dilution = (400 − 120) / 120 ≈ 2.33, i.e. around 233 % pending. Unlock value = 18m × 0.60 = USD 10.8m; that is 10.8 / 3.2 ≈ 3.4 days of volume.
233 % pending dilution, next event worth about 3.4 days of trading volume.
Reading: The second number is the actionable one. Whether 3.4 days is a lot depends on whether the released holdings are sold — that is an assumption, not an observation, and should be marked as one.
Interactive model
The worked example, with movable figures. Estimate first what happens — then check.
Unlock in days of trading volume
The amount says how much supply changes — the volume, whether the market can absorb it.
Estimate first, then check
Estimate first: an unlock of 18m tokens at USD 0.60 with USD 3.2m daily volume — how many days of volume is that? And how does the figure change if volume halves?
The starting values are the worked example's own figures — change one input at a time.
Dilution from the event: 15.0%. Days of trading volume: 3.4.
What the model does not show: Days of volume presuppose that the released tokens are actually offered for sale. Whether and how fast that happens is an assumption about the recipients that the model does not know.
Retrieval
Exercise on real data
Look at market cap, FDV and staking ratio in the catalog. Note which of them this platform serves — and which you would have to evidence elsewhere.
Supply and valuation metrics →Find a market with a high reward share. That share is the only emission figure directly visible here — record what it still does not say about the emission schedule.
Reward share as an emission signal →Application
You are to assess a token for a mandate holding twelve months at most. Which two documents do you request, and why those?
Related case studies
Institutional reading
- Asset management
- Does an unlock event fall inside the intended holding period?
- Bank
- Is the token a means of payment, a claim, or an incentive instrument — and what treatment follows?
Metrics in this lesson
Key takeaways
- Supply is a calendar; without timing a dilution figure says little.
- An unlock becomes actionable only relative to market depth.
- Revenue at the protocol is not return to the token holder — that needs a nameable mechanism.