How to Avoid Poor Tokenomics Techniques That Kill Projects
Poor tokenomics are the leading cause of token failure. This guide identifies the most damaging mistakes, from unfair initial distributions to unsustainable sell pressure. We show how using structured launch tools can prevent these errors and build trust from day one.
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The Problem
Traditional solutions are complex, time-consuming, and often require technical expertise.
The Solution
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The Verdict: Poor Tokenomics Are Avoidable
You can design a token for failure or for growth. The choice is in the structure.
The most common token failures stem from predictable, avoidable mistakes in token design. While creators often focus on marketing and hype, the underlying economic structure determines long-term viability. Platforms that enforce better practices, like transparent launches and sustainable fee models, significantly increase a project's chance of success. The key is to prioritize holder value and long-term incentives over short-term gains for the team.
5 Poor Tokenomics Techniques to Avoid Immediately
Here are the specific techniques that sabotage projects before they even begin.
- Unfair Initial Distribution & Team Dumps: Allocating 40-70% of tokens to the team/VCs with short unlock schedules. This floods the market, crushes price, and signals a cash-grab. A fairer model uses a smaller team allocation with longer vesting or a true fair launch.
- Excessive and Hidden Taxes: Implementing 10-15% buy/sell taxes to fund marketing or dev wallets. This makes trading prohibitively expensive, erodes capital with every transaction, and often lacks transparency on fund usage.
- Infinite, Unchecked Inflation: Minting new tokens indefinitely with no burn mechanism or utility sink. This constantly dilutes holder value, ensuring the price trends to zero unless demand is impossibly high.
- No Clear Utility or Revenue Share: Creating a token with no purpose beyond speculation. Tokens need a defined use—governance, platform access, fee discounts, or a share of protocol revenue (like Spawned's 0.30% holder rewards).
- Centralized Control & Mutable Rules: Retaining a master admin key that can pause trading, mint unlimited tokens, or change fees. This destroys decentralization trust. Using Token-2022 for enforceable, on-chain rules is a stronger alternative.
Poor Design vs. Sustainable Design: A Comparison
| Aspect | Poor Tokenomics Technique | Sustainable Alternative |
|---|---|---|
| Initial Supply | 70% to team/VCs, unlocked quickly. | <80% in liquidity, small vested team allocation, or fair launch. |
| Transaction Fees | 12% tax to "marketing wallet" (opaque). | 0.30% fee to all holders (transparent, like Spawned). Creator gets 0.30% separately. |
| Inflation/Burns | Infinite minting, no burns. | Capped supply, or buyback/burn from protocol revenue. |
| Post-Launch Fees | None; project runs out of funding. | 1% perpetual fee post-graduation (Token-2022) to fund development. |
| Tooling Cost | Paying $29-99/month for a basic website builder. | AI website builder included with launch, saving ongoing costs. |
This table shows that sustainable design aligns incentives between creators and holders, using transparent, automated systems instead of opaque, extractive ones.
Why These Techniques Fail: The Holder's Perspective
Consider a holder who buys a token. They see a 10% tax on every sale, meaning they immediately lose value if they need to exit. They check the holder list and see 60% of tokens are in a team wallet that starts selling next week. The token's website, costing the creator $99/month, has no clear roadmap for how the token will be used.
From this perspective, the rational choice is to sell immediately or avoid the project altogether. Poor tokenomics signal a lack of long-term commitment, turning potential advocates into skeptics. In contrast, a structure like automatic 0.30% rewards to holders and a capped supply demonstrates a shared interest in the token's health.
How to Avoid Poor Tokenomics: A 4-Step Checklist
Follow this process during your token's design phase to build a stronger foundation.
The Real Cost of Poor Tokenomics
Let's compare the financial impact of a bad launch versus a structured one.
The 'Poor Technique' Launch:
- Launch Cost: ~0.5 SOL for LP + contract.
- Hidden Costs: 15% tax on all trades alienates users. $99/month for a website builder. No ongoing revenue leads to abandoned project in 3 months.
- Result: Project fails, reputation damaged.
The Structured Launch (Spawned Example):
- Launch Cost: 0.1 SOL launch fee + LP.
- Ongoing Model: 0.30% creator fee per trade. 0.30% distributed to holders. AI website builder included (saves $29-99/month).
- Future Revenue: 1% fee post-graduation via Token-2022.
- Result: Sustainable project with aligned incentives.
The 'poor technique' launch appears cheaper upfront but has a 100% failure tax. The structured launch invests in long-term trust.
Launch With Tokenomics Built for Success
Avoiding poor tokenomics isn't about luck; it's about using the right tools and frameworks from the beginning. Spawned's model is designed to prevent the most common mistakes by standardizing fair fees, rewarding holders, and providing essential tools like the AI website builder.
You can launch a token with extractive, short-term economics, or you can build one with a sustainable future. The choice defines your project's trajectory and your reputation in the space.
Ready to launch with better tokenomics? Start your token on Spawned today.
Related Topics
Frequently Asked Questions
The most damaging mistake is an unfair initial distribution, where a large percentage (often 40-70%) of tokens is allocated to the team, advisors, or VCs with a short or immediate unlock schedule. This creates massive, predictable sell pressure that destroys price and holder trust from the outset. It signals that the insiders' priority is cashing out, not building a long-term project.
Typically, yes. Taxes above 5-6% make trading prohibitively expensive and create a constant drain on liquidity. While they are often marketed as funding for development or marketing, they are usually opaque and discourage the volume needed to sustain the project. A more transparent model is a small, standard fee (like 0.30%) that directly rewards holders and the creator separately.
Spawned builds better practices into its platform. The standard 0.30% fee to creators and 0.30% fee to holders aligns incentives from the start, removing the need for hidden, high taxes. The included AI website builder saves costs that might otherwise be funded via token sales. The path to a 1% perpetual fee using Token-2022 provides a clear, sustainable revenue model post-launch, avoiding the 'run out of funds' scenario.
An unlimited supply with no burn mechanism guarantees inflation, constantly diluting the value of each token held. Unless demand grows at an impossible, continuous rate, the price will trend downward. A capped supply or a clear model for burning tokens (e.g., using a percentage of revenue) is essential to create scarcity and protect holder value over time.
It is extremely difficult and often requires a full token migration or v2 contract, which can erode trust further. Major changes like reducing taxes or altering supply typically require community votes and complex execution. It is far more effective to design sustainable tokenomics correctly from the beginning using a platform that encourages best practices.
Successful gaming tokens tie token utility directly to in-game economies—for purchases, rewards, and governance. They avoid high taxes that would make in-game microtransactions too expensive. Many use a dual-token model (governance + utility) or robust sink/burn mechanisms. You can see examples in our guides for [creating a gaming token on Solana](/use-cases/token/how-to-create-gaming-token-on-solana) or [launching on Ethereum](/use-cases/token/how-to-launch-gaming-token-on-ethereum).
The automatic 0.30% distribution to holders on every trade creates a direct, passive income stream for anyone holding the token. This incentivizes long-term holding, reduces sell pressure, and builds a loyal community. It's a tangible utility that many tokens lack, turning a speculative asset into one that generates yield simply by being held in a wallet.
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