Definition ∞ Token velocity measures the rate at which a cryptocurrency or digital token circulates within its ecosystem over a specific period. It is calculated by dividing the total transaction volume by the average network supply of the token. A higher token velocity indicates frequent usage and exchange, while lower velocity suggests tokens are held for longer durations. This metric helps assess the utility and demand for a digital asset. It is a key indicator of network activity.
Context ∞ Token velocity is a key analytical metric frequently cited in crypto news and market analyses to evaluate the fundamental value and economic model of a digital asset. The current discussion often debates whether high velocity is always beneficial, as it can sometimes indicate speculative trading rather than genuine utility. Future token designs and protocol incentives aim to optimize token velocity to align with the project’s economic goals, balancing transactional use with long-term holding.
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