What are Tokenomics and why are they important?

Take a dive into the recent history of tokenomics in the NFT space, the reasons the P2E space is currently where it is at today, and its potential future.

Article Outline

  • What are Tokenomics?

  • The History of Tokenomics

  • What Led to the Current State of the P2E Market?

  • The Potential Future of Tokenomics

  • Closing Remarks

What are Tokenomics?

Tokenomics refer to a token’s economics, including the factors that impact a token’s use cases, and more importantly, its fundamental value.

It covers a vast array of domains:

1/ Token Supply and Demand

There are two key metrics used to determine supply:

a. Maximum supply - the total number of tokens that will ever exist/be minted (i.e. Bitcoin will only ever have 21 million tokens in supply, whereas Ethereum can always be increasing).
b. Circulating supply - the total number of tokens that are currently available for the market and general public to trade.

Looking at both these metrics helps to get a good idea of how many and how fast tokens are being minted/created.

As a token’s supply increases, and if demand is stable, the token’s price is likely to move down.

2/ Token Utility

Token Utility refers to what the token can be used for, for example:

a. Governance token
b. In-game currency
c. Minting more NFTs

This can help understand how the token's economy will likely evolve over time.

The more utility the token has in place, the more likely for demand for the token to rise, and thus the more likely price is to move upwards.

3/ Token Distribution

Knowing who holds how much of the pie is essential as it helps determine the potential risk of major shareholders dumping their bags.

The more a distribution is decentralized and not majorly held by a handful of key investors or founders, the healthier the token’s price volatility is. The less distributed the token’s supply is, the riskier it becomes to hold the token.

4/ Token Burns

Token Burns refers to the different ways a project allows for their token to be permanently burned.

If more tokens are burned than produced, the economy becomes deflationary.
If more tokens are produced than burned, it then becomes inflationary.

The more burning mechanisms a project has in place for its token, the more likely that supply will go down, and thus price will increase.

5/ Incentive Mechanisms

Incentive Mechanisms refer to incentives put in place to ensure holders are rewarded for holding onto their tokens.

The more incentives are in place for holding the token, the smaller the token’s selling pressure will be, and the more likely that its price will go up.

Assessing an NFT project’s tokenomics is essential before making an investment as bad tokenomics have the power to halt the growth of previously successful projects, sometimes even entirely killing their momentum.

The History of P2E and Tokenomics


The '13 crypto bull run also saw the launch of the very first blockchain game, Huntercoin, a game developed by XAYA allowing players to collect coins and resources, go head-to-head against other players, and dominate an in-game map.

Huntercoin proved to be very successful, but more importantly, showed that there was indeed room for scalable gaming to be created on the blockchain.


3 critical projects came to surface into the P2E space in 2017:

  1. Cryptobots, the first P2E game allowing players to use their NFTs as in-game characters.

  2. Spells of Genesis, the first mobile game allowing players to sell their assets for tokens on the blockchain.

  3. CryptoKitties, virtual Kitties which were breedable, in turn allowing players to create more NFTs. This however proved to create a problem as supply began exceeding demand.


Axie Infinity, a game allowing players to breed their Axies together and use them to battle with other players, was launched. However, due to a hack in 2022, the game saw a sharp decline in the number of players.

The Sandbox, a game initially released on Steam in 2015, was launched again, this time using blockchain technology. The game revolved around players crafting and making in-game items, also allowing players the ability to sell their crafted items.

Axie Infinity ($AXS) and The Sandbox ($SAND) became the first two P2E games to create their own tokens that still stand to this day despite both continuously decreasing in price after losing momentum in early 2022.

Source: CoinMarketCap
Source: CoinMarketCap
Source: CoinMarketCap
Source: CoinMarketCap


The 2021 crypto bull run also saw the emergence of some of the biggest P2E games in the NFT space. One of the earliest and first to take off was CyberKongz, launching in early March 2021 as a collection of 1,000 Genesis Kongz. The project quickly started becoming popular as they introduced the $BANANA token, allowing holders to generate 10 $BANANA per day. At the peak of $BANANA’s price ($105), holders were able to generate $1,000 USD per day by only holding a Genesis CyberKong. This concept took the space by storm as the project became a model for many to come.

Source: CoinGecko
Source: CoinGecko

Other major P2E NFTs began surfacing such as Bears Deluxe, launching in late August 2021, followed by Anonymice releasing in September 2021, and EtherOrcs releasing in October 2021. All saw huge success shortly after release also implementing staking mechanisms which allowed holders to yield custom tokens - Bears Deluxe ($HONEYD), Anonymice ($CHEETH) and Ether Orcs ($ZUG).

Many projects working on staking mechanisms for their holders began taking off and surging in volume around this time.

While many projects began implementing staking mechanisms, one project emerged that would shake the P2E space. Wolf Game was launched in November 2021 and saw an instant climb in floor price and token value as holders were yielding 10,000 $WOOL per day, with $WOOL initially being valued at $0.15 USD. Hence, holders were generating $1,500 USD on day 1. At its peak value ($0.445 USD), holders were yielding $4,450 USD daily.

Wolf Game also introduced a way to gamify the holders’ yielding experience. If a Sheep NFT was to be unstaked, there was a 10% chance that the Sheep NFT would be stolen by a staked Wolf NFT. The game also implemented many burning mechanisms such as allowing holders to spend their $WOOL in order to mint more sheep, wolves and land NFTs.

Many projects began copying this model and spinning their own iterations of it. Below is an NFT Passive Yield Power Rankings chart dated from December 7, 2021.

Source: Origins Twitter
Source: Origins Twitter

While 2022 saw a lot of development in the P2E space, the crypto bear market started showing some cracks in the current iterations of the P2E model.

According to Nansen, P2E-related NFTs saw a decrease of -68% in ETH value and a -89% in $USD value since January 2022, marking it as the worst-performing sub-genre in the NFT market YTD.

Source: Nansen
Source: Nansen

P2E tokens also began seeing many whales exiting and selling their holdings, further pushing the prices of many P2E tokens down.

What Led to the Current State of the P2E Market

Looking into some of the top P2E tokens in the space, it is obvious that many have lost their value as the chart is very similar to that of their respective NFTs, with many losing as much as 96% of their value since January 2022.

So what led to the current state of the P2E market and the downfall of many of these tokens?

1/ Money Must Come from Somewhere

The idea behind P2E games is simple. Users play the game and earn money. But where does the money come from? The answer is most often from new players.

Every time a new player joins, they first have to purchase the NFT and sometimes purchase the game’s native token if they wish to speed through the game, level up their character, mint more NFTs, etc.

The inherent problem with relying on new players to join is that there will always be someone holding the bag and losing money as they wait (and hope) for more players to join.

This is one of the bigger problems echoed by CT, as many investors feel that the games put early adopters in a prime position to maximize profit.

2/ P2E Games Aren’t Really Fun

Another problem is that many P2E games aren’t actually fun to play. Most P2Es cannot even be described as games as the entire earning mechanism revolves around staking alone. According to Decentraland’s Catalyst Monitor, around 500 users play daily whilst its token sits at a market cap of around $1.3B USD.

Source: CoinMarketCap
Source: CoinMarketCap

As promising as the future of gaming on the blockchain is, currently-available games aren’t fun to play, which in turn makes it difficult for their tokenomics to sustain.

3/ P2E Tokenomics are Rarely Sustainable

Many P2E games struggle to get their tokenomics right, with many trying to give out as much value to early investors as possible in hopes to attract more buyers.

As a result, many of these projects end up draining their liquidity pools quickly and leave many holders generating tokens with little-to-no monetary value.

The chart below shows the DVLs (Daily Value to Liquidity ratio) and MCap/TVL (Market Cap to Total Value Locked ratio) of some of the current top P2E games in the space.

The DVL indicator calculates how much value is given to all holders on a daily basis compared to how much liquidity currently sits in the project’s liquidity pool. The lower the percentage, the healthier the distribution, and thus more sustainable.

The MCap/TVL ratio calculates the value of all circulating tokens and compares it to the amount of liquidity in the token’s liquidity pool. MCap/TVL ratios below 1 are considered healthy and sustainable, whereas ratios above 1 are considered overpriced and volatile.

The Potential Future of Tokenomics

Though it is clear that the current wave of P2Es and their current tokenomics have largely struggled to remain sustainable and maintain value, the space is ever evolving with many projects experimenting with new ways forward.


EtherOrcs have recently announced that they plan on diverging away from passive token yielding and focusing on rewarding active gameplay instead. Compared to other P2E games in the space, EtherOrcs’ gameplay consists of two main game modes - Raids and Dungeon Crawls. In Raids, Orcs and/or their Allies can be sent on quests to find chests full of items needed to craft new weapons. Whereas in Dungeon Crawls, holders can explore dungeons using their NFTs as in-game characters and battle against monsters in order to find their chests.

“We want to focus on rewarding participation and building the game economy around participants.” - EtherOrcs’ announcement made September 30, 2022

The way they plan on doing this is by introducing a soulbound ERC-1155 token that cannot be transferred between wallets and is only usable with their contracts. Players will be able to earn the soulbound token by playing the game and spending their in-game currency, $ZUG. In turn, soulbound tokens will be used to yield the in-game currency at a higher efficiency and further upgrade their in-game characters through professions. Their goal is to make sure that rewards are handed to active players instead of those passively staking.


ArtGobblers is an upcoming project aiming to shape the standard of tokenomics in the space by introducing a new way forward. The NFTs will be able to produce the ecosystem’s token, $GOO, a token with an ever expanding circulating supply. The more $GOO stored within an ArtGobbler NFT, the faster it will generate more $GOO.

In parallel, a mechanism called VRGDA will be applied in order to automatically adjust the prices of items in the ecosystem over time depending on whether the token’s issuance is ahead of schedule or behind it.

The project will begin with an initially free mint of 2,000 NFTs with 8,000 more NFTs to be minted using the $GOO token over the span of 10 years. Issuance will relatively begin at a fast pace in order to ensure growth and then slow down to preserve exclusivity.

The system proposed by ArtGobblers is interesting, as it plays out dynamically with the action of various holders impacting the rate at which their $GOO token is issued, and thus its value is affected.

What this also means is that holders will be incentivized to both hold their NFTs and tokens in order to be able to keep up with $GOO issuance. Users who choose to hold $GOO with no ArtGobblers NFTs will be left with a token price continuously decreasing as supply rapidly expands. The same can be said about holders of ArtGobblers NFTs who choose to sell their tokens, as they will be producing less $GOO than others who hold onto their tokens, thus ultimately also losing value as the token’s supply rapidly increases.

Closing Remarks


Here are the summarized points made throughout this article:

  • The best ways to assess a token’s long-term sustainability and value is to look at its circulating and total supply, utility, distribution, burning mechanisms, and incentive mechanisms, including the development of actually-playable games

  • Current P2E models have shown to be widely unsustainable

  • The P2E market has lost the most value compared to any other NFT sub-genres since January 2022

  • More sources of funding project LPs have to be found in order to increase the ecosystem’s sustainability

  • More utility, burning, and incentive mechanisms have to be applied in order for tokenomics to maintain value in the long-term

  • ERC-1155 soulbound tokens may be a promising way forward towards rewarding active gameplay instead of passive yielding

  • Variable token production based on the number of NFTs and tokens held also seems to be a potentially promising future for tokenomics

At OriginsNFT we leverage data-driven decision making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs. To find out more, please visit our website or Twitter.

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