Clear DefinitionsToken Velocity
1 min read
Pronunciation
[toh-ken veh-luh-si-tee]
Analogy
Token velocity is like the turnover rate of money in an economy—how fast dollars change hands reflects economic activity.
Definition
A measure of how quickly tokens circulate within an ecosystem, calculated as the ratio of transaction volume to average token supply over a period.
Key Points Intro
Token velocity captures network utility and demand dynamics through:
Key Points
Circulation rate: Frequency tokens are transacted rather than held.
Economic indicator: High velocity suggests active usage; low velocity implies hoarding.
Price impact: High velocity can depress token price if supply is abundant.
Modeling tool: Used in tokenomics to forecast demand and design issuance.
Example
Technical Deep Dive
Velocity V = (Σ transaction volume in tokens over period) / (average circulating supply). On‑chain analytics index transfer events (ERC‑20 Transfer logs) and compute daily supply snapshots. Econometric models incorporate velocity into price predictions via adapted Fisher equations: P = (T × V) / M.
Security Warning
Overemphasis on velocity can incentivize spam transactions to inflate perceived usage; filter out dust and wash trades when measuring.
Caveat
Velocity alone doesn’t distinguish genuine usage from wash trading; combine with unique active addresses metrics.
Token Velocity - Related Articles
No related articles for this term.