Tokenomics (AI Context)
The economics and pricing structure of AI API services based on input and output token counts.
Overview
In the AI industry, tokenomics refers to how API providers price their services based on token usage. Tokens are the fundamental units processed by language models — roughly 3/4 of a word in English. Pricing varies by model capability, with frontier models costing significantly more per token.
Key Concepts
Input tokens (prompt) are typically cheaper than output tokens (completion). Batch processing offers discounts. Caching reduces costs for repeated prompts. Understanding tokenomics is essential for building cost-effective AI applications at scale.