Token Economy Review Methodology

Release: Version 1.0

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Document

Field	Description
Name	Token Economy Review Methodology
Creators	Hacken OU
Subject	Tokenomics; token security analysis; token supply; token economy;
Description	A systematic approach to evaluate and analyze token economies, combining quantitative and qualitative methods to assess sustainability, security, and effectiveness of tokenomics designs.
Author	Dmytro Yasmanovych | Compliance Services Lead, Hacken OU
Date	Oct 15th, 2025
Rights	Hacken OU

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Part 1. Background to Tokenomics

Overview

The Tokenomics Audit Methodology presents a comprehensive framework for evaluating token economies in blockchain projects. It combines qualitative structural analysis with quantitative simulation techniques to provide an objective assessment of tokenomic designs with the following key features:

• Systematic approach to token economy evaluation
• Standardized scoring system (AAA to D rating scale)
• Code compliance and verification
• Actionable recommendations framework

Hacken's token economy report aims to:

• Assess Economic Robustness: Evaluate whether the project token economy is designed to be sustainable and resilient.
• Identify Optimization Opportunities: Pinpoint areas within the economy that can be enhanced for better performance.
• Project Token Appreciation: Analyze allocation, vesting schedules, and financial projections to estimate potential token value growth.

Introduction

The emergence of Web3 and tokenized economies has created a need for robust methodologies to evaluate and audit token economic systems. Traditional financial audit approaches, while valuable, fail to capture the unique dynamics of token economies, which combine elements of game theory, monetary policy, and distributed systems.

This methodology addresses this gap by providing a structured approach to tokenomics auditing, incorporating lessons learned from both successful and failed token projects. It builds upon academic research in token economics while maintaining practical applicability for real-world implementations.

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Part 2. Structural Analysis

Objective

Auditor's guideline to evaluate the project's value creation and incentives, retention strategies, and agents involved to ensure that the token economy is robust and avoids destructive feedback loops.

1. Token Utilities

• Value Creation: Review how the project generates real utility and economic productivity. Examine if the service provision and market creation mechanisms add genuine value to users and incentivize long-term engagement.
• Core Utilities: Essential functions of the token, such as accessing services, products, and features within the ecosystem.
• Transaction and Interaction Utility: Usage of the token for dApp fees, payments, or interactions, which drive real demand and engagement.
• Governance and Voting Access: Granting token holders rights to participate in governance, adding value by involving users in project decisions.
• Value Retention: Investigate mechanisms such as staking, vesting, or burning practices that support stability and reduce volatility.
• Staking and Yield Mechanisms: Incentives for holding that reduce supply and provide returns.
• Burning Mechanisms: Processes reducing circulating supply to counter inflation.

2. Economic Agents

• Agent Roles: Identify key roles (investors, validators, liquidity providers, users) and their impact on the ecosystem.
• Contributions and Dependencies: Assess how each role contributes and whether dependencies create risks.
• Incentive Alignment: Confirm incentives promote long-term goals, balancing growth and stability.

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Part 3. Allocation and Distribution

Objective

To review token allocation and vesting schedules to ensure fair distribution and maintain market stability.

Token Distribution Analysis

• Holders Analysis: Use on-chain data to assess concentration, accumulation patterns, and whale formation risks.
• Token Distribution Model: Evaluate initial and ongoing allocations (team, development, marketing, community, reserves) with suggested ranges.
• Vesting Schedule Implementation: Assess lock periods, release frequencies, cliffs, and governance over modifications.
• Market Impact Analysis: Analyze historical and projected impacts of unlocks on liquidity, circulating supply, and price stability.

Monitoring

Projects may optionally implement ongoing monitoring using Hacken Extractor.

Performance Metrics

Metric	Target Range	Frequency
Holder Concentration	Top 10 holders < 50%	Daily
Monthly Unlock Rate	< 5% of total supply	Monthly
Liquidity Ratio	> 10% of market cap	Daily
Circulating Supply	10–20% at TGE	Daily
Market Cap/TVL	1–3x ratio	Weekly
Volume/MCap Ratio	> 0.1	Daily

Risk Assessment Parameters

Risk Category	Assessment Parameters	Frequency
Concentration	Whale formation probability	Weekly
Market Stability	Price impact per $100k	Daily
Vesting Impact	Projected unlock pressure	Monthly
Liquidity Risk	LP token concentration	Daily
Supply Risk	Inflation rate impact	Monthly
Distribution Risk	Holder diversity index	Weekly

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Part 4. Code Compliance and Verification

Objective

Ensure that the tokenomics model is securely and accurately implemented in code.

Scope of Review

Define boundaries of review: smart contracts, governance mechanisms, and dependencies relevant to tokenomics.

Compliance Standards and Benchmarks

• Standards Reference: OWASP, ERC standards (ERC-20, ERC-721, ERC-1155), etc.
• Benchmark Criteria: Minimum performance/security thresholds for consistency.

Required Documentation

• Developer Documentation: Purpose, parameters, dependencies of each function.
• Functional Requirements: Expected behavior of key components.
• Flow Diagrams & Netspecs: Visualization of minting, burning, staking, reward distribution flows.

Key Evaluation Points

• Token utility validation (fees, governance, staking).
• Reward and penalty mechanisms.
• Burning mechanisms functionality.
• Supply control functions (minting, vesting).
• Security and access controls.

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Part 5. Scoring & Rating

Scoring Criteria

• Structural Analysis (40%)
  Token utilities, value retention, incentive structures, economic agents.
• Allocation & Distribution (35%)
  Holder distribution, vesting schedules, TGE transparency, market metrics.
• Code Compliance & Verification (25%)
  Utility validation, reward/penalty mechanisms, burning, supply control, access controls.

Weighted Score Formula

Category Score = (Total Points Scored / Total Possible Points) x 5 x Category Weight

Where:

• SA = Structural Analysis
• AD = Allocation and Distribution
• CCV = Code Compliance and Verification

Rating Scale

• AAA (4.5–5): Outstanding, no major weaknesses
• AA (4.0–4.4): Strong, minor improvements possible
• A (3.5–3.9): Solid, moderate improvements needed
• BBB (3.0–3.4): Adequate, some weaknesses
• BB (2.5–2.9): Weak, several issues
• B (2.0–2.4): Significant issues, needs improvement
• C (1.0–1.9): Very weak, likely unsustainable
• D (0–0.9): Fails to meet basic standards

Example Calculation

• SA (40%) → (20/27) × 5 × 0.4 = 1.481
• AD (35%) → (15/18) × 5 × 0.35 = 1.458
• CCV (25%) → (8/13) × 5 × 0.25 = 0.769

Total Score = 3.708 → Rating = A (3.5–3.9)

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Conclusion

The Token Economy Security Assessment Methodology provides a comprehensive, structured, and evidence-based framework for analyzing tokenomics. It balances structural evaluation, allocation reviews, and code verification with a transparent scoring model, enabling objective ratings and actionable recommendations for sustainable token economies.

For onboarding, please fill our Hacken Compliance Services Form.

Glossary

Term	Definition
Total Supply	The maximum number of tokens the blockchain can issue. - Available or Circulating Quantity: Number of tokens already issued and available at a given time. - Total Quantity: The maximum number of tokens that will eventually reach circulation.
Vesting periods	The vesting period locks developers' tokens for a set length of time, protecting investors from perpetrators of pump-and-dump scams.
Staking and Mining	Mechanisms within the tokenomics model where: - Staking involves holding tokens to support network security or participate in governance, often in exchange for rewards. - Mining refers to the process of validating and adding transactions to the blockchain, typically earning new tokens as a reward.
Token Burns	A deflationary mechanism used by cryptocurrency platforms to permanently remove tokens from circulation, helping to counteract inflation and support long-term token value.
ICO (Initial Coin Offering)	A fundraising method for new cryptocurrency projects where tokens are sold to early investors.
TVL (Total Value Locked)	The total amount of assets locked within a protocol.
Utility	Utility refers to the benefits a token offers to the token holders.
Market Cap and Fully Diluted Valuation (FDV)	While the market cap is for the current circulating tokens, FDV deals with the maximum ones. If token A has a maximum supply of 15 and trades at $3, its FDV will be$45.