Exploring the concept of tokenomics for ERC-20 tokens and how to manage them for tokens deployed on OpenDApps Cloud.
Table of contents
- What are tokenomics?
- Importance of tokenomics in ERC-20 tokens
- Example of tokenomics
- Management of tokenomics for tokens on OpenDApps Cloud
5.1. Types of taxation
5.2. Taxation limitations
5.3. Automatic burn
5.4. Automatic addition of liquidity to DEX
5.5. Staking Rewards
5.6. Distribution to an address
In this blog post, we will dive into the concept of tokenomics, how they are connected to ERC-20 tokens, and how they became one of the main powers behind any blockchain project.
We will look over some examples of tokenomics use cases as well as take a deep dive into the management of tokenomics for tokens deployed using OpenDApps Cloud services.
Before we start make sure you have MetaMask set up and you have successfully connected and logged into OpenDApps Cloud. A quick guide on how to do that on testnets can be read here:
OpenDApps Cloud — Testnet Connection and Testing Guide
A how-to guide on preparation for testing services from OpenDApps Cloud on testnets
Before taking a grasp into tokenomics you have to be familiar with the concept of ERC-20 tokens and OpenDApps Cloud Token-as-a-Service solution. An overview of those can be found in this blog post:
Token-as-a-Service on OpenDApps Cloud — An Overview
Exploring the concept of ERC-20 tokens and how they are used to create the Token-as-a-Service solution on OpenDApps…
Let’s get started!
What are tokenomics?
In the context of ERC-20 tokens, tokenomics encompasses various factors that influence the token’s value, distribution, and utility within the blockchain network.
Tokenomics can vary significantly from project to project. Careful consideration is crucial for creating a token that aligns with the project’s goals, engages the community, and maintains a healthy economic ecosystem.
Here are some key components of tokenomics in ERC-20 tokens:
- Total Supply: The total number of tokens that will ever exist. This number is usually fixed during the token’s creation and can affect scarcity.
- Initial Distribution: How tokens are initially distributed among participants. This could include an allocation to the project team, early investors, advisors, partners, and the broader community through a token sale.
- Token Issuance Rate: If the token supply is not fixed, the rate at which new tokens are created and introduced into the ecosystem can impact inflation and scarcity dynamics.
- Transfer Taxation: Tokens add taxation on buy/sell transactions or on all transfers. The tokens gathered from the taxation are distributed and used for different utilities like burning, buyback, developer or marketing pays.
Importance of tokenomics in ERC-20 tokens
Tokenomics is important for ERC-20 tokens, serving as the strategic blueprint that shapes the token’s entire lifecycle. It holds the economic framework that defines the token’s utility, and distribution within the blockchain ecosystem. This framework directly influences investor sentiment, user engagement, and the project’s overall success.
At its core, tokenomics aligns incentives and behaviors within the ecosystem. A well-designed tokenomics model establishes clear motivations for users, developers, and investors, fostering active participation and contribution. This, in turn, generates a network effect as more users join the ecosystem, potentially enhancing the token’s value proposition and attractiveness.
Furthermore, tokenomics provides the groundwork for sustainable growth. By determining token issuance, scarcity, and utility mechanisms, projects can manage volatility, prevent extreme inflation or deflation, and ensure the token remains a viable means of exchange and value storage. In sum, tokenomics is the strategic backbone that not only influences economic dynamics but also defines the essence of a project’s community, utility, and long-term potential.
Example of tokenomics
Almost every token deployed on an EVM blockchain has some kind of taxation on buy and sell transactions. The funds are then used to fulfill the utility goal set by the project owners.
To show the power of tokenomics we will take a look at the well-known token SafeMoon. The tokenomics of SafeMoon are built around taxation on every transfer.
The tokens from the taxation are then split into different parts:
- Token Reflections— 4% is split proportionally among all holders
- Auto Liquidity: 3% to Liquidity Pool
- Auto Burn: 2% to Burn
- Wallet Transfer: 1% to Ecosystem Growth Fund
As we can see tokenomics can be a powerful instrument that shapes the token and allows very flexible distributions.
Management of tokenomics for tokens on OpenDApps Cloud
The tokenomics configuration for the taxation of transfers is fully customizable and changeable at any time for tokens deployed using OpenDApps Cloud.
If you want to learn how to deploy ERC-20 tokens using OpenDApps Cloud read our guide:
Guide: How to deploy ERC-20 Tokens using OpenDApps Cloud
A how-to tutorial for deployment and basic management of ERC-20 tokens using OpenDApps Cloud with an overview of the…
Once a token is deployed using OpenDApps Cloud dApp we have access to the Tokenomics configuration page. To access we can go to our dashboard, find our token and select “Manage Tokenomics” from that menu:
This will transfer us to the “Manage Tokenomics” page for the token. Here we can adjust taxation tokenomics executed on buy, sell, or wallet transfers:
As we can see all tokens deployed using OpenDApps Cloud dApp have a default buy and sell tax of 1% which goes to the platform as service fee. The maximum tax from all distributions combined per tax type is 9%, or 10% if we include the 1% service tax.
Let's dive into the individual configurations and how they can interact with our token and what can be achieved with them.
Types of taxation
As it can be seen from the photos above there are 3 main types of taxation in OpenDApps Cloud Token-as-a-Service tokenomics. The types are as follows:
- Buy tax — taxation is executed on all buys from any DEX where the token is listed using OpenDApps Cloud Treasury. After each buy the tokenomics configuration is executed and tokens are distributed utilizing it.
- Sell tax — taxation is executed on all sells to any DEX where the token is listed using OpenDApps Cloud Treasury. After each sale the tokenomics configuration is executed and tokens are distributed utilizing it.
- Transfer tax — taxation is executed on transfers between wallets. After each wallet transfer the tokenomics configuration is executed and tokens are distributed utilizing it.
Transfer tax is disabled by default and has to be enabled before tokenomics are executed.
To ensure fair use and a smoother experience for the token holders, OpenDApps Cloud has put in place some limitations to the allowed configurations of tokenomics.
The maximum size of taxes for any of the supported taxation is 10% which is fair and more than enough for any kind of need. This ensures that project owners will not lock holders with a 99% tax on transfers creating a honeypot.
Transfers between a wallet and a contract cannot be taxed, allowing for a smoother experience with staking, asset backing, and any other service from OpenDApps Cloud.
Automating liquidity is not executed on each transaction because it will allow sandwich attacks. Instead, the tokens are collected until a threshold is met and the swap in addition to liquidity is executed from an external service providing trustable oracle data on the price for permits eliminating the typical attack on automatic liquidity tokens.
Staking rewards can be configured from taxation only when the staking service is used and deployed. Otherwise, the rewards cannot be configured.
Burning is a way to decrease the supply of a token. A lot of tokens implement automatic burning tokenomics with their taxation on buy or sell transactions. This turns the token deflationary reducing the supply with every transaction.
Tokens deployed using OpenDApps Cloud dApp have access to automatic burn using the “Auto Burn” Slider:
Moving the slider to the right will increase the automatic burn for our buy tax. The slider then allows us to save the configuration onto the blockchain:
After we click save we can execute the transaction and after it is successful our tokenomics configuration will now distribute 5% of each buy to automatic burning making our token deflationary. The burning can be observed in a blockchain explorer where buys will have 5% of tokens being sent to the empty address 0x0000….
Automatic addition of liquidity to DEX
Liquidity on a DEX is usually an indicator of token price strength. The greater the percentage of liquidity compared to the market cap, the more stable the price is during large volumes. This is why a lot of projects incorporate auto liquidity into their transfer taxation strengthening their liquidity a little each time a transfer take place.
Tokens deployed using OpenDApps Cloud dApp have access to auto liquidity after they have listed their token on a DEX using the “DEX Listing” toolkit. After the token is listed on a DEX, the “Auto Liquidity” slider can be used to set up auto liquidity distribution:
Staking is one of the most common ways to reward token holders for their diamond hands. Staking often requires holders to give their tokens to a smart contract where streams of rewards are collected and later holders can collect them depending on their staking pool share.
One way to generate a stream of staking rewards is through taxation distribution where a % of every transaction for the selected taxation type is transferred to the staking contract as rewards for holders.
Tokens deployed using OpenDApps Cloud dApp can configure staking rewards from taxation after they have deployed a staking service using the “Deploy Staking” toolkit:
After deployment of the staking service, staking rewards distribution can be enabled from the tokenomics management form:
Clicking the “Enable” button will execute a blockchain transaction allowing us to input the required % of taxation for the staking rewards distribution using the slider:
Distribution to an address
If we have any other idea for tokenomics distribution we can use the very powerful “Auto Distribution”. It allows us to configure a % from any taxation to be contributed to any wallet or contract address we provide. This option is the backbone of all custom utilities like marketing or developer payments, charity, custom contract interactions, and much more.
To add an address to automatic distribution we can use that “Add Address To Distribution” input, part of the tokenomics management form:
For this example, we will input a wallet that we will use for developer payments from taxation. Once we input the wallet, a slider will pop up allowing us to configure the requested % from taxation we want to distribute to the wallet:
After we execute the save transaction we will have the option to edit the distribution at any time as well as to remove any we do not need anymore:
This wraps it up with our overview and guide to tokenomics in OpenDApps Cloud.
In-depth guides on available services and other SaaS-related information resources are available in this blog and any related content will be linked here:
- OpenDApps Cloud — Testnet Connection and Testing Guide
- Token-as-a-Service on OpenDApps Cloud — An Overview
- Guide: How to deploy ERC-20 Tokens using OpenDApps Cloud
- Inflationary Tokens on OpenDApps Cloud — An Overview & Guide
- Baseline Price Insurance Service for Tokens on OpenDApps Cloud — An Overview
- Decentralized Companies in OpenDApps Cloud — An Overview