What Is an Endogenous Variable?

An endogenous variable is a variable within an economic or financial model whose value is determined by other variables in the same system. In simpler terms, it is influenced by internal factors and interactions rather than by external forces.

In economic models, endogenous variables represent the outcomes that shift in response to changes within the model itself — such as prices, income levels, or production output.

How Endogenous Variables Work

In a basic supply and demand model, both price and quantity are examples of endogenous variables. These variables adjust automatically depending on shifts in supply and demand. For instance, if demand increases while supply stays constant, prices rise. Conversely, if supply grows but demand remains stable, prices fall.

Within a firm’s production model, endogenous variables can include output levels, sales, and profits. These depend on internal factors such as production efficiency, input costs, or investment in technology. For example, when a company improves its production process, its output and profit levels are likely to change — demonstrating how internal variables interact within a system.

Endogenous Variables in Crypto

In the cryptocurrency market, endogenous variables also play a crucial role.
The price of a cryptocurrency is one of the most significant examples. It is determined by internal market dynamics such as trading volume, investor sentiment, and network activity. A spike in demand or trading volume can drive prices higher, while a drop in market participation can have the opposite effect.

Another key endogenous variable in crypto is the hash rate — the measure of computational power used to mine new blocks. The hash rate fluctuates depending on how many miners are active and how difficult the mining process becomes, showing how network conditions can internally shape blockchain performance.

Conclusion

Endogenous variables are vital components of both economic and crypto models because they evolve in response to internal interactions within a system. In economics, they include prices, production, and income. In crypto, they cover metrics such as price and hash rate — values that reflect how internal market dynamics influence performance and growth.