Rootcore #8 Tokenomics: How to Make Sure You’re Not Building a Financial Pyramid

This is the second article in the series: “How to Create a Token, Walk Through a Field of Rakes, and Survive in the Crypto Market.”

The previous article served as an introduction and explored the current state of the listing industry and what it is actually optimized for.

In this article, I’ll explain why almost every token is doomed to an endless downtrend before it even reaches exchanges. How the industry designs fragile tokens. And what I personally look at when designing and evaluating tokenomics.

The difference between you — a founder and builder of a project — and me, a trader with 9 years of first-line exposure to token markets, lies in how we perceive token pricing and what a token actually is in relation to the market.

Very often, founders equate the value of their token with the value of their project.

They believe that if the product is strong and useful, then the token price will inevitably grow.

But in reality, token pricing is not about ideas or product quality. It is about capital flows within liquidity infrastructure.

The success of a company has no connection to token price unless that connection was intentionally designed at the tokenomics stage.

What I Expect to See in Tokenomics

When I read tokenomics, I expect to hear a story about:

• how capital flows move,
• how the profit engine works,
• at what stage capital increases in value,
• and most importantly — where demand for the token will come from.

That last part is missing in roughly 99.9% of tokens.

What Tokenomics Usually Looks Like

Usually, the story goes like this:

We created a token. We distributed the token. We raised capital. We defined vestings and lockups. Thank you everyone. See you in the bright future.

That story tells me only one thing:

The token already contains a certain number of future sellers, while the price depends entirely on incoming new demand.

At the same time, nothing is said about:

• where that demand will come from,
• why it should absorb selling pressure,
• or what will make the token appreciate in the long term.

Why I Barely Look at Market Cap and FDV

When discussing tokenomics, you constantly hear terms like:

• supply,
• FDV,
• market cap.

I barely look at FDV or market cap at all. To me, these are mostly useless numbers that often say almost nothing. Sometimes it feels like half the concepts in crypto were invented simply because the industry didn’t have anything better.

Market cap is simply:

total supply × token price.

But this has almost nothing to do with the real capitalization of a token. The real capitalization of a token is the capitalization of its liquidity and reserves. Moreover:

Market cap does not affect price. Price affects market cap.

On a thin market, market cap can be inflated very cheaply.

How a Million Dollars of Market Cap Appears Out of Thin Air

Imagine:

• a token has a $10,000,000 market cap,
• and $50,000 creates 10% slippage.

You buy $50,000 worth of the token.

The price rises by 10%.

Now the market cap becomes $11,000,000.

Congratulations.

On paper, $1,000,000 of capitalization appeared literally out of nowhere.

But that capital gives the token absolutely no strength.

The only thing that actually strengthened the token was the $50,000 that entered liquidity.

What Number I Actually Look At

I look at a metric almost nobody pays attention to. Although people usually start listening to me only after the catastrophe has already happened and nothing can be changed.

I look at: Circulation-to-Liquidity Ratio

Circulation-to-Liquidity Ratio

This number shows me the real imbalance between supply and demand.

How I Calculate It

I take:

• all unlocked tokens held by holders,
• multiply them by the token price,
• and get the volume of potential selling pressure.

Then:

• I sum the liquidity of MM accounts and DEX pools,
• divide liquidity by potential supply,
• and get the ratio between selling pressure and the liquidity available to absorb it.

Very often, this is where the token’s core problem hides.

Why Most Tokens Are Doomed

Because of template-style tokenomics, in most cases the market maker is the only participant willing to absorb selling pressure. And they do it with an extremely limited budget.

Very often, the ratio looks something like: 1:100 or worse.

For example:

• potential selling pressure = $10,000,000
• MM budget = $10,000

The project is literally telling the market maker:

“Please generate volume, hold the price, and don’t buy anyone out.”

Throughout all my years in crypto MM — until founding Root — I kept seeing how far common sense is from standard market practices.

The Token Dies Before Listing

As a result, the token enters listing already structurally overloaded with supply.

At the same time:

• there is no logic for sustained demand,
• liquidity is minimal,
• and the MM only holds a tiny fraction of the potential selling pressure.

Then marketing ends.

And the token begins its dive into an endless downtrend until eventual delisting.

What You Should Actually Focus On When Designing Tokenomics

1. Distribution

How and at what prices early investors enter directly affects the liquidity-to-supply ratio.

Ask yourself:

How much of the raised capital will actually go into liquidity and MM accounts?

If your MM is not also your liquidity provider, this becomes critically important.

The higher this ratio is, the more stable your token price will be.

ROOTS Example

In the ROOTS token, at peak distribution, this ratio is approximately:

1:13

Yes, holder quality matters too. But you should never build tokenomics on the assumption that nobody will sell.

If you have:

• $10,000,000 worth of holders
• and only $10,000 of liquidity

— any mid-sized holder can crash the price.

Control this ratio if you want to control price impact.

It’s also important to understand:

Any bonus token distribution dilutes circulation and worsens the ratio.

The Most Important Thing — Demand Flow

But there is something even more important.

The demand flow that transforms a financial pyramid into an actual asset.

In every financial pyramid, the breaking point comes when the inflow of new money stops.

After that, the price collapses and never truly recovers.

Closed-Loop Tokenomics

Using ROOTS as an example, I’ll describe how this can work.

I call it Closed-Loop Tokenomics.

The idea is simple:

Capital entering the token feeds business infrastructure that increases the value of capital itself.

Excess value — in simple terms, profit — returns back into the token through buybacks, increasing the token’s value.

This is visual example of Roots capital flow.

Why This Matters

In such a model, even if all new money stops flowing into crypto entirely, the token can continue living.

Even if it enters a downtrend due to excessive supply, eventually it can recover thanks to recurring demand.

And then another phenomenon starts working:

Perceived Value

Take Bitcoin as an example.

People know:

• there will be less and less of it,
• demand continues to exist,
• therefore its price will likely rise.

Because of this, Bitcoin attracts high-quality long-term holders.

The same can happen with your token.

The mere existence of built-in recurring demand will attract stronger holders.

People become more willing to hold long-term.

Don’t Wait for a Savior

Don’t wait for someone to come and buy your token to push the price up.

Create a strategic inevitability of price appreciation inside the tokenomics itself.

Then your token will:

• build your reputation,
• generate market trust,
• and become a long-term asset.

Final Thoughts

This is still far from the entire field of rakes.

But it’s a very large part of it.

I’ve seen countless tokens suffer massive long-term losses precisely because of tokenomics mistakes.

When a token is already 2–3 months old, structurally overloaded with supply, and its tokenomics contain no demand logic — the best a market maker can do is:

• slowly buy back the token,
• spend reserves efficiently,
• reduce the negative impact of sellers,
• and try to avoid delisting,

dragging the project through crypto winter until the next bull market.

With strong tokenomics and a quality MM, your token can become an asset that gradually expands its zones of influence and its sovereignty.