Why does the dYdX token increase in value?
The dYdX token skyrocketed after it was revealed that the planned unlock of 130 million tokens had been delayed by ten months.
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How tokenomics affects cryptocurrency prices
The market supply of an asset is the key element of tokenomics. Supply is classified into three types: circulating, total, and maximum.
1. The term circulating supply refers to the number of cryptocurrency coins or tokens that are publicly available and circulating in the market.
2. The total supply is the amount of all tokens issued, excluding those burned.
3. The maximum supply refers to the total number of tokens that can ever be issued.
There are also cryptocurrencies with an infinite supply. We will prepare a separate article about the peculiarities of regulating the price of an asset with an infinite supply.
The price of a token can be expected to rise over time if the developers control its circulation to avoid a mismatch between supply and demand. On the other hand, if too many tokens are released into the market at once or too frequently, then its price will inevitably fall.
There are traditional market laws in the crypto economy: increased supply always results in a price decrease. This principle is used in staking: by motivating users to freeze (lock) assets, project owners restrain the token’s inflation. However, locking cannot last forever. All the assets frozen by the holders must eventually be transferred to them. The project is then faced with the dilemma of how to prevent a drop in the token price.
The project’s founders may:
● increase the percentage of reward paid for staking;
● change the burning algorithm;
● postpone the unlock time limit.
How the dYdX Foundation team fights inflation
DYDX is the internal token of the dYdX perpetual contract exchange. Its max supply is 1 billion. However, only 16% (156,256,174 DYDX) of the total supply is in circulation.
On January 25, dYdX published a blog post stating that 130 million DYDX tokens allocated to investors, developers, and advisors that were scheduled to unlock on February 3 will now enter circulation on December 1. In other words, ten months after the settlement date. There are 300 million locked tokens in total.
DYDX immediately increased by 61%, according to Coinmarketcap. ETH, for example, has increased by 5.8% over the same period.
Source: coinmarketcap
With 156 million dYdX tokens currently in circulation, their supply should have increased by 80% following the unlock. This would immediately collapse the market price of the asset at least twice.
The unlock date for frozen tokens, however, cannot be postponed indefinitely. Investors and developers will be disappointed. Of course, they are interested in freezing the asset in a growing market, but the crypto spring will not last forever. We are well aware of this. And there are no guarantees that in 10 months they will not receive at their disposal a token that has depreciated several times.
As a result, the dYdX project's founders decided to reduce holders' risks.
Unlocking will start on Dec. 1, but only 30% of the frozen DYDX will enter circulation. The 40% tranche will be unlocked between 1.01 and 1.06 in 2024, followed by the remaining 20% unlock spread in July 2024. The rest of the tokens will enter the market in July 2025.
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